Recently, the National Statistical Office (NSO), Ministry of Statistics and Programme Implementation released the First Advance Estimates (FAE) of National Income for the financial year 2022-23 at both Constant (2011-12) and Current Prices along with the corresponding estimates of expenditure components of the Gross Domestic Product (GDP).
The First Advance Estimates of GDP, were introduced in the year 2016-17 with an objective to serve as essential inputs to the Budget exercise. The FAE is compiled using the Benchmark-Indicator Method wherein estimates available for the previous year are extrapolated using relevant indicators reflecting the performance of sectors.
Now the recent First Advance Estimates are given for the current financial year i.e., 2022-23 along with the provisional estimates for the immediate previous financial year i.e., 2021-22 and the first revised estimates for the year immediately preceding the previous year i.e.., the year 2020-21. This gives a broad idea about how our economy is going to fare in the current financial year based on the techniques of estimation used. This sequence of the way GDP numbers are projected goes on every next year.
What do the GDP numbers indicate?
According to the first advance estimates, the Indian economy is likely to grow at 7% in the current financial year. Although it is lower than 8.7 per cent in the year 2021-22 yet it is a little higher than the independent estimates given by the IMF which has projected a growth rate of 6.8 per cent for the Indian economy and quite recently the World Bank has also estimated it to be 6.9 per cent. The Reserve Bank of India, in its December monetary policy review has projected the real GDP growth for 2022-23 at 6.8 per cent.
If we talk about the nominal GDP or the GDP at current prices, well, it is estimated at Rs. 273.08 lakh crore for the current financial year, which is higher than Rs. 236.65 lakh crore as per the provisional estimates for the previous year i.e., 2021-22 indicating a growth rate of 15.34 percent as against 19.5 per cent achieved last year as per the provisional estimates worked out for the year 2021-22.
A comparative data for the estimated growth rates for the last two years is depicted in the following Chart:
India considered lone shining bright spot in an otherwise bleak global economy
The data on National Income as given by the FAE may have also to be analyzed in the context of certain domestic and external factors that influence the growth rates when expressed in percentage terms. For instance the respective preceding year may not be the same for any two consecutive years. The year 2020-21 preceding the year 2021-22 was more severely hit by covid19 syndrome. The global economy has posed many challenges and the Indian economy is navigating through tough terrain. According to the World Economic Outlook report, October 2022, the global growth is forecast to slow from 6.0 percent in 2021 to 3.2 percent in 2022 and further to 2.7 percent in 2023. What is striking here is that this is considered as the weakest growth profile since 2001 barring the exception of the global financial crisis and the acute phase of the COVID-19 pandemic. IMF estimates that the Global growth may decelerate from 6.0 percent in 2021 to 3.2 percent in 2022 and even further to 2.7 percent in the year 2023. Global economic activity is experiencing a broad-based and sharper-than-expected slowdown with inflation reaching record levels in several decades. At a time when the global economy is grappling with the severe rise in the cost of living and supply chain disruptions due to the prolonged war between Russia and Ukraine, IMF observes that India continues to be the lone bright spot in an otherwise bleak picture of the world economy.
Sectoral indicators provide useful information
The First Advance Estimates also provide sector-wise estimates in terms of percentage changes in the main indicators used in the estimation for the respective sectors. These estimates are compiled through various indicators like:
- Index of Industrial Production (IIP),
- financial performance of Listed Companies in the Private Corporate sector available for Q1 and Q2 2022-23,
- Crop production targets and First Advance Estimates of Crop Production for 2022-23,
- Production targets for 2022-23 and production estimates of Major Livestock Products for summer season of 2022-23,
- Fish Production,
- Production/ Consumption of Cement and Steel,
- Net Tonne Kilometres and Passenger Kilometres for Railways,
- Passenger and Cargo traffic handled by Civil Aviation,
- Cargo traffic handled at Major Sea Ports,
- Sales of Commercial Vehicles,
- Bank Deposits & Credits,
- Accounts of Central & State Governments, etc., available for first 7-8 months of the financial year 2022-23.
Mixed bag for the sectoral growth prospects
The first advance estimates of Gross Value Added (GVA) at 2011-12 Prices indicate that most sectors except manufacturing, mining and public administration are estimated to improve their performance in the current fiscal. A graphic presentation is given below:
It may clearly be seen that the manufacturing, mining and construction sector may have been impacted most due to rising advent of inflation and the global recessionary tendencies. Yet the Indian economy, based on its overall performance across sectors, apparently is likely to retain its position as the World’s fastest growing major economy. It is also expected that the Indian economy has a chance to do even better by giving a boost to the sectors that have lagged behind.
It may also be interesting to analyze the first advance estimates of GVA at current prices. It is given in the Chart below:
To conclude, Indian economy has largely been resilient despite tough economic conditions both at the domestic and global levels, due to several positives such as a large consumption base, huge infra push coupled with a series of structural and policy reforms by the government and a proactive monetary policy instance, to name a few. Some economists do treat these numbers as mere numbers because estimates are after all estimates only. Actually, all estimates are based on certain premises, which may or may not remain the same over a period of time. But in the short run at least, data like FAE do have their own importance in that they act as a guiding force in the budget making process for the next financial year. These estimates are also revised at regular intervals to factor in the underlying changes, if any.
Reference: This article is published by the Author in the Newsletter “KnowFunda Digest” (4th Edition) on LinkedIn on January 15, 2023.