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First Advance Estimates of economic output: NSO

Posted on January 8, 2022 by admin1  716

In News 

  • Recently, the National Statistical Office (NSO)  released the First Advance Estimates (FAE) for the current financial year (2021-22 or FY22). 

What are the First Advance Estimates of GDP?

  • It was first introduced in 2016-17, are 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.”
    • For instance, for these FAE, the MoSPI has extrapolated sector-wise estimates using indicators such as Index of Industrial Production (IIP) up to October, inflation — both retail and wholesale — data up to November, sale of commercial vehicles data up to September, so on and so forth.

Significance

  • The first advance estimates are released early to help officers in the Union Finance Ministry and other departments frame the broad contours of Union Budget 2022-23.
    • From the Budget-making perspective, it is important to note what has happened to nominal GDP — both absolute level and its growth rate. 
      • Real GDP, which is the GDP after taking away the effect of inflation, is a derived metric. All Budget calculations start with the nominal GDP.
        • Real GDP = Nominal GDP — Inflation Rate
  • The difference between the real and nominal GDP shows the levels of inflation in the year.

Key  takeaways

  • GDP Growth: India’s gross domestic product (GDP) is expected to grow by 9.2% in the current financial year following last fiscal’s 7.3% contraction.
    • It is supported by an uptick in the farm, mining and manufacturing sector outputs
  • There is significant growth in ‘mining and quarrying (14.3%), and ‘trade, hotels, transport, communication and services related to broadcasting’ (11.9%).
  •  Manufacturing is seen expanding by 12.5% after shrinking by 7.2% in the previous 12-month period.
  • The agriculture sector is estimated to see a growth of 3.9% in FY22, higher than the 3.6% expansion recorded in the previous financial year
  • Low Private Consumption:  private consumption demand will continue to remain low and investments in the economy, and government expenditure is expected to improve.
    • Private consumption expenditures typically account for more than 55% of all GDP. 
  • Its level is expected to stay substantially the 2019-20 level. Such weak levels of private demand will make it difficult to sustain economic growth in the months and years ahead.

Image Courtesy: IE

 

NSO Comparison with RBI 

  • The NSO estimate for the current financial year is lower than the RBI’s GDP projection in its December 2021 policy review. 
  • The central bank had projected the economy to grow 9.5 per cent, with the rider that this assumed no resurgence of Covid-19 infections in India.
    • The rising cases of the Omicron variant of the coronavirus have prompted several economists to lower growth projections for this year, with particularly the fourth quarter numbers likely to come under strain.

Other related projections for the Indian Economy 

  • International Monetary Fund (IMF): the 9.5% forecast by the International Monetary Fund (IMF).
  • Moody’s Investors Service had in recent weeks put India’s growth forecast at 9.3%. 
  • Fitch Ratings has projected an 8.7% expansion.
  • IHS Markit: India is likely to overtake Japan as Asia’s second-largest economy by 2030 when its GDP is also projected to surpass that of Germany and the U.K. to rank as the world’s No.3.
    • Currently, India is the sixth-largest economy, behind the U.S., China, Japan, Germany and the U.K.
      • The rapidly growing consumer market as well as its large industrial sector have made India an increasingly important investment destination for multinationals in many sectors, including manufacturing, infrastructure and services.
    • Impacts: This rapid pace of economic expansion would result in the size of Indian GDP exceeding Japanese GDP by 2030, making India the second-largest economy in the Asia-Pacific region.
      •  By 2030, the Indian economy would also be larger in size than the largest Western European economies of Germany, France and the U.K.

Gross Domestic Product

  • It is the monetary value of all finished goods and services made within a country during a specific period.
  • It provides an economic snapshot of a country, used to estimate the size of an economy and growth rate.
  • It can be calculated in three ways, using expenditures, production, or incomes and can be adjusted for inflation and population to provide deeper insights.

 

Gross Value Added 

  • It is the value of output minus the value of intermediate consumption and is a measure of the contribution to growth made by an individual producer, industry or sector.
  • It provides the rupee value for the number of goods and services produced in an economy after deducting the cost of inputs and raw materials that have gone into the production of those goods and services.

 

(Image Courtesy: EH)

Image Courtesy: TH

 
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