GDP Estimate

GDP Estimate

Subject : Economy

Section: Indian  Economy and National Income

India’s GDP estimates for the current financial year (2023-24) based on the First Advance Estimates (FAEs) released by the government.

Here are the key points:

GDP Growth Estimate:

• The FAEs project that India’s GDP will grow by 7.3% in the current financial year, slightly faster than the 7.2% growth in the previous year (2022-23).

Basis for Budgeting:

• The FAEs are crucial as they are the last GDP data released before the Union Budget for the upcoming financial year is finalized. They form the basis for budgetary calculations.

Estimation Method:

• The FAEs are indicator-based and compiled using the benchmark-indicator method. Data from the first seven months of the financial year are extrapolated to provide an annual picture.

Significance of FAEs for 2023-24:

• The FAEs for the current year gain significance as they offer the first complete picture of economic growth of the last ten years.

GDP Growth Trend:

• The chart illustrates India’s real GDP in absolute terms and growth rate. By the end of March 2024, India’s GDP is expected to reach almost Rs 172 lakh crore.

Engines of GDP Growth:

• The text outlines the four main engines of GDP growth, including private consumption expenditure, gross fixed capital formation, government final consumption expenditure, and net exports.

Components of GDP Growth:

• It provides insights into how each component, such as private consumption demand, investment spending, government spending, and net exports, contributes to India’s GDP growth.

Comparison of Growth Trends:

• The growth rate in the second term of the government (2019-20 to 2023-24) is compared to the first term (2014-15 to 2018-19), highlighting a lower compounded annual growth rate (CAGR) in the second term.

Net Exports:

• The negative growth rates in net exports suggest that Indians are importing more than exporting. The drag effect from net exports has grown, but there is a mild improvement over the two terms.

Private Consumption Expenditure (C or PCE):

• This represents the total value of goods and services purchased by households in an economy over a specific time period.
• It includes spending on durable goods (e.g., cars, appliances), nondurable goods (e.g., food, clothing), and services (e.g., healthcare, education).
• Private consumption is a crucial driver of economic activity and is often a significant portion of a country’s GDP.

Government Final Consumption Expenditure (G or GFCE):

• This represents the total value of goods and services purchased by the government for direct consumption or for the collective benefit of the community.
• It includes spending on public goods and services such as defense, education, healthcare, and public administration.
• Government consumption expenditure is a component of government spending and contributes to overall economic activity.

Gross Fixed Capital Formation (GFCF):

• GFCF refers to the total value of new and replacement investments in physical assets made by both the private and public sectors within a country during a specific period.
• It includes spending on machinery, equipment, buildings, infrastructure, and other physical assets that contribute to the expansion and improvement of the productive capacity of the economy.
• GFCF is an indicator of the level of investment in an economy and is crucial for sustaining economic growth in the long term.

To calculate GDP using the expenditure approach, the formula is as follows:

GDP=C+I+G+(X−M)

Where:

• C is Private Consumption Expenditure
• I is Gross Fixed Capital Formation
• G is Government Final Consumption Expenditure
• X is Exports of goods and services
• M is Imports of goods and services

These components together represent the total spending in the economy, and GDP is the sum of all these expenditures.

About First Advance Estimates,” “Second Advance Estimates,” and “Provisional Estimates

The terms “First Advance Estimates,” “Second Advance Estimates,” and “Provisional Estimates” are stages in the process of estimating a country’s Gross Domestic Product (GDP) for a specific fiscal year.

These estimates provide insights into the overall economic performance and are crucial for economic planning and policy formulation. Here’s an overview of each stage:

1. First Advance Estimates (FAE):
   • The First Advance Estimates are released early in the financial year, usually in January, by the government.
   • These estimates provide an initial projection of the GDP growth rate and key economic indicators for the ongoing fiscal year.
   • FAE are based on available data for the first few months of the fiscal year, and projections are made for the remaining months.
2. Second Advance Estimates (SAE):
   • The Second Advance Estimates are released later in the financial year, typically in February, following the First Advance Estimates.
   • By this stage, more data for the fiscal year are available, allowing for a more refined and accurate estimation of GDP growth and other economic parameters.
   • SAE provide an updated and improved outlook compared to FAE, incorporating additional economic data.
3. Provisional Estimates:
   • The Provisional Estimates are released towards the end of the fiscal year, usually in May.
   • At this stage, most of the relevant data for the entire fiscal year are available, providing a comprehensive and accurate assessment of economic performance.
   • Provisional Estimates serve as the basis for the finalization of the annual economic accounts.
4. Final Estimates (Actuals):
   • After the end of the fiscal year, the authorities revise and finalize the GDP estimates based on the most complete and accurate data available.
   • These Final Estimates, also referred to as “Actuals,” are typically released after thorough data reconciliation and validation.
   • The Final Estimates provide the official and most accurate figures for the GDP growth rate and other economic indicators for the completed fiscal year.

In summary, the First Advance Estimates provide an early projection, the Second Advance Estimates offer an updated outlook, and the Provisional Estimates present a more comprehensive assessment. The Final Estimates, released later, represent the most accurate figures for the GDP and economic indicators for a specific fiscal year.