 releases three Advance Estimates of GDP for the current financial year. On January 31 2022, MoSPI, released its first advance estimates (FAE) of GDP for the financial year 2021-22, which also provided a line of sight to next year’s GDP. On Monday, MoSPI released its Second Advance Estimates (SAEs) of GDP but what are these advance estimate reports?){kind=link}
For each financial year, the Ministry of Statistics and Programme Implementation (MoSPI) releases three Advance Estimates of GDP for the current financial year. On January 31, 2022, MoSPI, released its first advance estimates (FAE) of GDP for the financial year 2021-22, which also provided a line of sight to next year’s GDP. On Monday, MoSPI released its Second Advance Estimates (SAEs) of GDP but what are these advance estimate reports?
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What is an Advance estimate report?
The government’s budgeting process is facilitated by an advance estimate of GDP. When computing quarterly GDP, the first estimate is released around a month after the quarter ends. It incorporates all available information at the time, but because essential information may not be available right away or may be subject to adjustment, it is examined and usually revised in the preliminary estimate and subsequently in the final estimate.
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Growth estimates help in calculating deficit numbers for current fiscal year(FY). It also forms the basis for the government to estimate growth numbers for the upcoming fiscal year to help in tax collection. As a result, the advance estimate is important as a guideline for quarterly performance.
What does estimates say about GDP?
The FAE of 9.2 percent estimated by the MoSPI for FY22, is lower than the RBI’s estimate of 9.5 percent, although the FAE is believed to have accounted for negative impulses induced by Omicron in a base case scenario. GDP for FY22 is expected to be about 8.5 percent, according to estimates.
According to economists, the impact of the third wave of Covid on economic momentum, particularly in contact-intensive sectors, is expected to slow growth in the second half of the current fiscal year(H2FY22). Also causing a slowdown in the manufacturing sector were production constraints caused by a semiconductor shortage in the electronic and vehicle industries, as well as coal supply difficulties and power outages, they said. The problem is further compounded by rising worldwide crude oil and input prices.
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There are three key engines of growth in India’s overall GDP. The largest is Private Final Consumption Expenditure (PFCE), which accounts for about 55 percent of GDP and is spent by everyone in their personal capacity. The money spent by private companies (and, to a lesser extent, the government) to increase productive capacity is the second largest. This is an investment expenditure. Reported as Gross Fixed Capital Formation (GFCF), It accounts for roughly 33% of GDP. Then there’s the amount that governments spend on their own consumption (as against their investments). The Government’s Final Consumption Expenditure (GFCE) is calculated in this way.
According to the SAE, overall GDP is likely to return to pre-Covid levels, while private income and expenditures are still well below pre-Covid levels. This will indicate limited consumer demand, robbing firms of the desire to invest in the future.
However, the changing distribution of the sub-components has shifted the narrative. PFCE and per capita PFCE (read expenditure) have increased, despite the fact that overall GDP and per capita GDP (read income) have remained relatively stable. SAEs have decreased in both GFCE and GFCF (over FAEs).
Overall, all components are higher than they were pre-Covid, and private demand is driving them, which bodes well for the future.
Is that the final estimate?
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The GDP figures are revised multiple times during each financial year. Every year, in the last week of January, MoSPI issues the FAEs, soon before the budget. The SAEs are released at the end of February, once the data from Quarter 3 has been incorporated. After combining the data from Quarter 4 (January to March), the Provisional Estimates are released by the end of May. More data is added to each revision, improving the accuracy and robustness of the GDP figures.
“During times of such upheavals, revisions are extremely important,” said Pronab Sen, India’s former Chief Statistician.
” We’re still dealing with a lot of data that isn’t complete. For instance, statistics from the Ministry of Corporate Affairs will only be accessible in the Second Revised Estimates (Jan-end, 2024). As things stand, if you combine this GDP statistics with other estimates like unemployment, you could argue that the upper arm of the ‘K’ has performed better than expected,” he added.
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