First Advance Estimates by NSO

In News

• According to the first advance estimates of national income released by the National Statistical Office (NSO), India’s Gross Domestic Product (GDP) is expected to grow 7 percent in the financial year 2022-23.

Key Points

• About:
  • This marks the first official government estimate for economic growth ahead of the upcoming Union Budget for 2023-24. 
  • The first advance estimates, obtained by extrapolation of seven months’ data, are released early in January to help officers in the Union Finance Ministry and other departments frame the broad contours of the budget for the next financial year. 
  • The second advance estimate of GDP is then released on February-end.
• Slower GDP growth:
  • This is slower than the 8.7 percent GDP growth in 2021-22, but slightly higher than the Reserve Bank of India (RBI) forecast of 6.8 percent for the current financial year (FY).
  • Gross Value Added (GVA) is seen growing at sub-7 percent – 6.7 percent in FY23 as against 8.1 percent last fiscal. 
  • The GDP projection of 7 percent factors in a 0.2 percent contraction in private final consumption expenditure during the second half of the current FY, indicating weak demand and the impact of slowing exports. 
• Declining Growth of Nominal GDP: 
  • India’s nominal GDP, which factors in the inflation rate, is set to grow by 15.4 percent in 2022-23, down from 19.5 percent in 2021-22. 
• Performance of Various Sectors:
  • The growth of GDP will be aided by good performance and higher growth of the agriculture and services sectors. 
  • Agriculture is seen growing at 3.5 percent in FY23 as against 3 percent growth in the previous year.
  • The manufacturing sector is seen growing 1.6 percent as against 9.9 percent last fiscal. 
  • Electricity generation is estimated to grow 9 percent as against 7.5 percent last year, while the construction sector is seen growing at 9.1 percent as against 11.5 percent last fiscal.
  • The services sector, especially hospitality and financial services, are expected to post a strong rebound. Trade, hotels, and transport services are projected to post a growth of 13.7 percent in 2022-23 from 11.1 percent growth last fiscal. 
• Projections:
  • On the demand side, while private final consumption expenditure, gross fixed capital formation and exports are expected to witness reasonably good growth.
  • For the consumption side, government final consumption expenditure may record a low single digit growth.
  • The growth projections for the trade, hotels, transport and communication services segment seem quite optimistic. 
  • The growth projections for the public administration and other services segment are on the lower side and the projections are likely to undergo revisions going ahead.

The First Advance Estimates (FAE) of GDP

• About:
  • It was first introduced in 2016-17, and is typically published at the end of the first week of January. 
  • They are the “first” official estimates of how GDP is expected to grow in that financial year. 
  • But they are also the “advance” estimates because they are published long before the financial year (April to March) is over.
  • The FAE is published soon after the end of the third quarter (October, November, December), they do not include the formal Q3 GDP data, which is published at the end of February as part of the Second Advance Estimates (SAE).
• Methodology:
  • The FAE is derived by extrapolating the available data. 
  • The approach for compiling the Advance Estimates is based on the Benchmark-Indicator method i.e. “the estimates available for the previous year (2020-21 in this case) are extrapolated using relevant indicators reflecting the performance of sectors.”
• Significance:
  • The first advance estimates are released early to help officers in the Union Finance Ministry and other departments frame the broad contours of the next Union Budget.
  • From the Budget-making perspective, it is important to note what has happened to nominal GDP — both absolute level and its growth rate. All Budget calculations start with the nominal GDP.

Challenges for India’s Growth

• Lingering Slowdown:
  • India’s growth story is worrying because the slowdown began much before the COVID-19 pandemic. 
  • It began in 2016, after which, for four consecutive years, the growth rate each year was lower than in the previous year.
  • This downward spiral stretching over four years has never happened before in India since its independence in 1947.
• Rising Inequalities:
  • The inequality in India has risen disproportionately over the last few years. 
  • Most of India’s growth is occurring at the top end, with a few corporations gathering a disproportionate share of profits.
  • A large segment of the population are actually witnessing negative growth.
• Eroding Trust:
  • The investment rate has many drivers- monetary policy, fiscal policy, social and political factors. 
  • It is arguable that trust is a major driver of investment. As the level of trust erodes in a society, investment tends to fall.
  • With the rise of political polarisation and the policy of divide and rule, it is likely that societal trust is eroding and this is reducing the investment rate.
• Low Job Creation:
  • The falling investment rate is adversely impacting growth and hurting job creation and high unemployment rate.
  • Also, the erosion of trust is slowing down investment and adversely impacting job creation.

Way Ahead

• India needs to shift the policy focus from a few rich corporations to the larger segments of population — small businesses, farmers and ordinary labourers. 
• There is a need for fiscal policy interventions to transfer income from the super-rich to these segments. 
• For a sustainable growth and recovery of the Indian economy, revival of private corporate sector capex is a must.
• India must create an ethos of inclusion and trust for inclusive growth.

Source: IE