The Ministry of Statistics and Programme Implementation (MoSPI) recently released the First Advance Estimates (FAE) for the present fiscal year (2021-22). According to these estimates, India’s Gross Domestic Product (GDP) is projected to grow by 9.2% in 2021-22.
Understanding First Advance Estimates of GDP
First introduced in 2016-17, the FAE are usually published at the beginning of January. These estimates give us ‘first’ official predictions of how GDP is expected to grow for the given financial year. They are termed as ‘advance’ estimates because they’re published even before the financial year ends, specifically right after the third quarter ends. The FAE, however, do not include concrete Q3 GDP data. This data is released towards the end of February as part of the Second Advance Estimates (SAE).
Significance of First Advance Estimates
The primary importance of the FAE is that it provides GDP estimates that the Union Finance Ministry uses to allocate budgets for the next financial year. For this purpose, it’s crucial to estimate the nominal GDP, both in terms of its absolute level and growth rate. This helps calculate Real GDP and inflation. Nominal GDP minus the inflation rate gives you the Real GDP. Hence, the difference between real and nominal GDP illustrates the levels of inflation for the year.
How are the FAE Calculated?
The MoSPI has a specific approach for compiling the advance estimates. This is based on applying the Benchmark-Indicator method, where the data from the previous year (2020-21, in this case) is extrapolated using relevant indicators reflecting the performance of different sectors. This extrapolation process uses data from various sources like the Index of Industrial Production (IIP) and commercial vehicle sales data.
Challenges in Data Calculation
Since the COVID-19 pandemic has caused substantial fluctuations in the last couple of years, many projections have been affected. The MoSPI has noted that these are only early projections and may be revised depending on how the pandemic impacts the economy and the government’s fiscal response.
GDP vs GVA
GDP represents the economy from an expenditure viewpoint by adding up all expenditures. This includes private consumption, gross investment, government spending, and exports minus imports. On the other hand, Gross Value Added (GVA) provides a snapshot of the economy from the supply side. It measures the value added by various economic sectors such as agriculture, industry, and services.
In 2015, India made significant changes to its national accounts compilation process to align it with the United Nations System of National Accounts (SNA) of 2008. This included changing the base year from 2004-2005 to 2011-2012, replacing Factor Cost with Market Prices, broadening the data pool, and improving coverage of financial corporations in GDP estimation.
Last Modified: February 15, 2024