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Estimates of Q3 & India’s GDP

Estimates of Q3 & India’s GDP

The Ministry of Statistics and Programme Implementation (MoSPI) Tuesday, 28th February 2023, released economic growth data on Gross Domestic Product (GDP) and Gross Value Added (GVA) for the third quarter (Q3 or October to December) of the current financial year (2022-23 or FY23), as well as the Second Advance Estimates (SAEs) for the full year.

The initial GDP estimates are more relevant as they are available within the financial year. However, the true picture of the economy, in terms of the magnitude and direction of growth, unfolds over the entire revision cycle. It is thus important to study the revision cycle in order to obtain a detailed picture of growth in the economy.

Understanding the Estimates

In India, the Central Statistics Office (CSO) releases six estimates of annual GDP for any given year, over a period of two years and 10 months. The initial estimates (or projections) are called the Advance Estimates (AE) and Provisional Estimates (PE). Over time, the initial estimates are revised and are released as the First (1st RE), Second (2nd RE) and Third (3rd RE) Revised Estimates.

In the revision cycle, the AE uses 7-8 months of data on high-frequency indicators that are assumed to capture the level of economic activity in each sector. The 1st, 2nd and 3rd REs are further revisions based on availability of data from actual expenditure figures in government budgets and finalisation of government accounts. The 3rd RE is considered as the final estimate of the year, available after a lag of two years and 10 months.

The PE is the first full-year estimate as it is based on 12 months of data on all sectoral indicators.

The Advance Estimates of National Income are compiled using the benchmark-indicator method i.e. the estimates available for the previous year referred to as the benchmark year (2021-22 in this case) are extrapolated using the relevant indicators reflecting the performance of sectors. The First Advance Estimates (FAE) for 2022-23, based on very limited data and by using Provisional Estimates of 2021-22 (released on 31st May 2022) for the benchmark year, was earlier released on 6th January 2023.

The Second Advance Estimates (SAE) of National Income for the year 2022-23 was released on 28th February, 2023. These estimates have now been revised incorporating latest information on relevant indicators in the financial year.

For compilation of SAE 2022-23, the Provisional Estimates of 2021-22 used at the time of FAE have been replaced by First Revised Estimates (FRE) 2021-22 which have been compiled using industry-wise/institution-wise detailed information. Thus, variations in SAE from FAE is attributed to revision of benchmark estimates and additional data available on various indicators like CPI, IIP, Revised Estimates of fiscal data, financial results of listed companies etc. used for compiling the estimates for 2022-23. The quarterly estimates of previous years along with the first and second quarter estimates of 2022-23 released earlier have also undergone revision in accordance with the revision policy of National Accounts.

The sector-wise estimates have been compiled using indicators like (i) Index of Industrial Production (IIP), (ii) financial performance of Listed Companies in the Private Corporate sector available for Q1, Q2 and Q3 2022-23, (iii) Second Advance Estimates of Crop Production for 2022-23, (iv) Production targets for 2022-23 and production estimates of Major Livestock Products for Summer and Rainy seasons of 2022-23, (v) Fish Production, (vi) Production/ Consumption of Cement and Steel, (vii) Net Tonne Kilometres and Passenger Kilometres for Railways, (viii) Passenger and Cargo traffic handled by Civil Aviation, (ix) Cargo traffic handled at Major Sea Ports, (x) Sales of Commercial Vehicles, (xi) Bank Deposits & Credits, (xii) Accounts of Central & State Governments, etc., available for first 9/10 months of the financial year 2022-23.

Data released on 23rd February 2023 includes:

  • Quarterly Estimates of GDP for the quarter October-December (Q3), 2022-23
  • Second Advance Estimates (SAE) of National Income, 2022-23 
  • Revised Estimates of National Income, Consumption Expenditure, Saving and Capital Formation:
    • First Revised Estimates (FRE) for the financial year 2021-22;
    • Second Revised Estimates (SRE) for the financial year 2020-21; and
    • Third Revised (TRE) or Final Estimates for the financial year 2019-20

These estimates are released both at Constant (2011-12) and Current Prices, in accordance with the release calendar of National Accounts.

What is the Situation?

Second Advance Estimates

In the current financial year, India’s gross domestic product (GDP) is expected to grow at 7%. The Asian Development Bank (ADB) has projected the Indian economy to expand seven percent while the International Monetary Fund (IMF) has pegged growth at 6.8% in FY 2022-23.  

The revised downward projection of 7% GDP growth for the full year 2022-23 is an indicative of the tough and challenging times in the next quarter too, due to global uncertainties and recessionary trends in the current rising interest rate cycle.

Gross Value Added (GVA)

The GVA measures the total value of goods and services produced in an economy, and the amount of value added to a product. It is defined as the output produced after the deduction of the intermediate value of consumption. The GVA, in India, is measured at ‘basic prices’.

The GDP gives the picture from the consumers’ angle or demand perspective, whereas the GVA gives a picture of the state of economic activity from the producers’ perspective or supply side. Notably, both measures might not match because of the difference in the treatment of net taxes.

The GVA provides a sector-wise breakdown, helping policymakers decide which sectors need incentives or stimulus and accordingly formulate sector-specific policies. But the GDP is a key measure while making a country-wide analysis and comparing the incomes of different economies.

The services sector accounts for 53.89% of total India’s GVA of 179.15 lakh crore Indian rupees. With GVA of Rs. 46.44 lakh crore, the Industry sector contributes 25.92%. While Agriculture and allied sector share 20.19%.

Real gross value added (GVA) at basic prices is estimated at ₹ 147.12 trillion (US$1.78 trillion) in 2022-23, showing a growth of 6.6% over the previous fiscal. Nominal GVA at basic prices is estimated at ₹ 247.07 trillion (US$2.99 trillion) in 2022-23, registering a growth of 15.2% over previous fiscal.

At constant prices 2011-12, GVA shows that from 2nd revised estimate of 2020-21 to 1st revised estimate of 2021-22, to now published Second Advance Estimate of 2022-23 overall each sector has grown. The numbers differ when we calculate percentage change from year-on-year basis.

Quarter 3 Update:

Indian economy grew at 4.4% between October and December 2022 (Q3FY23). GDP at Constant (2011-12) Prices in Q3 2022-23 is estimated at ₹40.19 lakh crore, as against ₹38.51 lakh crore in Q3 2021-22, showing a growth of 4.4%.

GDP at Current Prices in Q3 2022-23 is estimated at ₹69.38 lakh crore, as against ₹62.39 lakh crore in Q3 2021-22, showing a growth of 11.2%.

The GDP growth data released by the government indicates that economic growth has been slower than expected, and could raise concerns over the growth trajectory going forward, as the global economic situation continues to remain tense.

While GDP growth usually moderates in the third quarter, the bigger-than-expected drop has been triggered by high inflation, which prompted the RBI to maintain a tighter monetary policy and hike key rates multiple times since May 2022.

The overall trend of subdued demand has led to major reduction in the growth of manufacturing sector which had earlier played an important role in GDP growth. Although Agriculture sector has done reasonably well, it was not sufficient to prop up the aggregate growth rate.

The next release of quarterly GDP estimates for the quarter January-March, 2023 (Q4 2022-23) and Provisional Annual Estimates for the year 2022-23 will be on 31st May, 2023.

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