Reading GDP Early Estimates
- Ministry of Statistics and Programme Implementation (MoSPI) has released the First Advance Estimates (FAE) for the current financial year (2021-22).
- According to MoSPI, India’s Gross Domestic Product (GDP) will grow by 9.2% in 2021-22.
- Last financial year the GDP contracted by 7.3%.
First Advance Estimates of GDP:
- First introduced in 2016-17, they are the “first” official estimates of how GDP is expected to grow in that financial year.
- It is the “advance” estimates as they are published long before the financial year (April to March) is over- soon after the end of the third quarter or Q3.
- However, they do not include the formal Q3 GDP data, which is published at the end of February.
- Union Finance Ministry uses it to decide the next financial year’s budget allocations.
- It is important to estimate the nominal GDP — both absolute level and its growth rate.
- This will further help in calculating Real GDP and inflation.
- Advance Estimates is based on the Benchmark-Indicator method.
- The estimates available for the previous year (2020-21 in this case) are extrapolated using relevant indicators reflecting the performance of sectors: MoSPI extrapolates sector-wise estimates using indicators such as previous data of Index of Industrial Production (IIP), sale of commercial vehicles data, etc.
- The pandemic has upset many such projections because of significant fluctuations during the past couple of years.
- Due to this, the MoSPI has alerted that “these are early projections” are liable for subsequent revisions depending on Covid.
- At 9.2%, the real GDP growth rate for FY22 is slightly lower than most expectations, including RBI’s, which pegged it at 9.5%.
- For FY22, while real GDP will grow by 9.2%, nominal GDP will grow by a whopping 17.6%. The difference between the two growth rates — about 8.5 percentage points — is essentially a marker of inflation.
- While investments in the economy, and government expenditures are expected to claw back to the pre-Covid level, private consumption demand typically accounts for more than 55% of all GDP.