INDIA'S GDP GROWTH

1. Context

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.

2. First Advance Estimates(FAE) of GDP

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).

2.1 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.

3. Nominal GDP vs Real GDP

There are two ways to look at the First Advance Estimates (FAE).

One is to look for the “nominal” GDP growth rate; this is the rate of growth that is observed and includes the effect of prices. The nominal growth rate is the one used to decide the next year’s Budget allocation.
The second way to look at the FAE is to look for the “real” GDP growth data; that is, the growth once we remove the effects of inflation. Looking at the real GDP data tells you what has been happening in the economy in “real” terms.

3.1 Real GDP

It is the GDP after taking away the effect of inflation.

Real GDP growth rate = Nominal GDP growth rate — Inflation Rate

3.2 Nominal GDP

India’s nominal GDP is set to grow by 15% in the current financial year. While this is an impressive number, it is lower than the 20% growth in 2021-22. Moreover, it is also noteworthy that a large part of this nominal growth is a result of the high prices (read inflation). In fact, inflation contributed to a majority of the nominal GDP growth since the real GDP growth rate is expected to be just 7%.

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.

4. Real GDP and real GVA

The FAE suggest that in the current financial year, real GVA (gross value added) and real GDP (gross domestic product) — the two main ways to measure India’s national income -will grow by 6.7% and 7%, respectively.
By themselves, these numbers may seem impressive; even more so when compared internationally. But international comparisons are of limited value.

4.1 Gross Value Added (GVA)

It is the value of output minus the value of intermediate consumption.
GVA 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.
Simply put, GDP provides the demand side of the economy, and GVA the supply side.

5. 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.

6. 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.

For Prelims

For Prelims:First Advance Estimates, Gross Domestic Product, Gross Value Added, Inflation, Real GDP vs Nominal GDP.

Source: The Indian Express

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