The recently unveiled First Advance Estimates (FAEs) by the government reveal that India’s GDP is set to experience a growth of 7.3% in the ongoing financial year (2023-24). This marks a slightly accelerated pace compared to the 7.2% growth observed in the previous fiscal year (2022-23). The data suggests a positive trajectory for the nation’s economic landscape.
What do the FAEs say?
India is poised to achieve a growth rate of 7.3% in the current financial year, securing its position as the fastest-growing major economy. However, the projected growth of 8.9% in nominal terms for FY24 signals a notable slowdown compared to the robust 16.1% recorded in the previous fiscal year.
The government anticipates a slight dip in year-on-year Gross Value Added (GVA) growth, projecting 6.9% for 2024, down from the 7% recorded in the preceding fiscal year 2023.
Contrary to initial expectations, analysts and experts had foreseen a growth figure surpassing the government’s projection, hovering around 7%.
This optimism was fueled by the Reserve Bank of India’s gross domestic product forecast adjustment. In December, the RBI revised its growth forecast for FY24 to 7% from the initial estimate of 6.5%, citing robust growth in high-frequency indicators.
The unexpectedly strong GDP figure for the September quarter, displaying a 7.6% year-on-year growth, following a substantial 7.8% expansion in the previous quarter, further contributed to the positive sentiment.
However, some economists remain cautious, foreseeing India’s full-year economic growth aligning more closely with the RBI’s forecast of 7%. Their apprehension stems from expectations of reduced government expenditure in the fourth quarter, following elevated spending in the initial eight months of the fiscal year.
Why FAEs now and not three months later?
Estimating GDP, especially when there are still nearly three months left in the financial year, might seem surprising. However, the First Advance Estimates (FAEs) are a preliminary snapshot, typically disclosed in each year’s first week of January. They provide an initial glimpse into the expected growth for the ongoing financial year.
This initial estimate is refined over time. By the end of February, the Ministry of Statistics and Programme Implementation (MoSPI) will release the Second Advance Estimates. Further adjustments are made, and the Provisional Estimates are presented by the end of May.
Over the next three years, MoSPI will release the First, Second, and Third Revised Estimates, each contributing to a more refined understanding of the year’s GDP. Ultimately, the final and definitive figure, referred to as the “Actuals,” emerges through this meticulous process of estimation and revision.
How are the FAEs calculated?
The methodology behind the First Advance Estimates (FAEs) involves a comprehensive analysis of the economy’s performance during the initial seven months of the fiscal year. These findings are then extrapolated to formulate an annual overview.
The official press release explained that the FAEs rely on the benchmark indicator method. This entails extrapolating estimates from the previous year (2022-23) by utilising relevant indicators that mirror the sectors’ performance.
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