GDP 2nd Advance Estimates: What’s Changed Since 1st, What it Means

GDP 2nd Advance Estimates: What’s Changed Since 1st, What it Means

Ministry of Statistics and Programme Implementation (MoSPI) released the Second Advance Estimates (SAEs) of GDP for the current financial year. These are an update over the First Advance Estimates (FAEs) released on January 7.

How many revisions of GDP estimates are done, and why?

• For each financial year, say 2021-22, the GDP estimates go through several rounds of revisions. Each year on January 7, MoSPI releases the FAEs.
• Then in February end, after incorporating the Q3 data, come the SAEs.
• By May-end come the Provisional Estimates after incorporating the Q4 (Jan to March) data.
• Then, in end-January 2023, MoSPI will release the First Revised Estimates for FY22. These will be followed by the Second Revised Estimates (by Jan-end 2024) and the Third Revised Estimates (by Jan-end 2025).
• Each revision benefits from more data, making the GDP estimates more accurate and robust.

Main engines of growth:

• Private Final Consumption Expenditure (PFCE) accounts for over 55% of GDP.
• The second biggest is the money spent by private firms (and, to a small degree, the government) towards increasing productive capacity. This is investment expenditure.
• Gross Fixed Capital Formation (GFCF) accounts for around 33% of GDP.
• Then comes the money spent by governments towards their consumption (as against their investments). This is the Government Final Consumption Expenditure (GFCE).

How are the two pictures different?

• Based on FAEs, the key observations about the nature of India’s recovery were:
• Overall GDP was expected to go past the pre-Covid level.
• Recovery was driven by higher investments — as evidenced by the spike in GFCF.
• The main worry was poor levels of PFCE, which was well below the pre-Covid levels.
• The argument was: overall GDP is likely to be back at pre-Covid levels, but private income and expenditures are far below pre-Covid levels. This will imply weak consumer demand, and rob businesses of the incentive to continue investing.
• But now, even though overall GDP and per capita GDP (read income) have not changed much, PFCE and per capita PFCE (read expenditure) have jumped.
• Overall, all components are above the pre-Covid level and they are being led by private demand, which augurs well for the future.
• However, this is not the final picture.

How did so much change in a month?

• Due to the inadequacy of data while making the FAEs.
• there are no independent estimates on the expenditure side, so what MoSPI does is that it takes the production side data and they classify goods and services as either ‘consumption’ goods or ‘investment’ goods.

If one looks at this GDP data with other estimates such as those of unemployment, one could argue that the upper arm of the ‘K’ has done better than what was previously imagined.

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