Introduction:
- The First Advance Estimates (FAEs) are crucial economic indicators released at the end of the first week of January each year. They provide initial estimates of economic growth for the ongoing financial year.
- The Ministry of Statistics and Programme Implementation (MoSPI) subsequently releases the Second Advance Estimates and the Provisional Estimates by the end of May.
- FAEs are based on the performance of the economy over the first seven months of the financial year.
Body:
- The Advance Estimates of National Income are indicator-based and are compiled using the benchmark-indicator method. This method involves extrapolating the estimates from the previous year using relevant indicators that reflect sectoral performance.
- The FAEs hold significant importance as they are the last GDP data released before the Union Budget, presented on February 1, is finalized.
What do the FAE data show?
- FAEs provide insights into India’s real GDP (GDP adjusted for inflation) both in absolute terms (in Rs lakh crore) and in terms of the growth rate.
- For the financial year 2023-24, the FAEs estimate a growth rate of 7.3%, which is higher than the expectations of most observers, including the Reserve Bank of India, which predicted growth between 5.5% and 6.5%.
- This unexpected higher growth rate highlights the robustness of India’s economic recovery.
Components of GDP:
India’s GDP is calculated by aggregating various types of spending in the economy:
- Private Final Consumption Expenditure (PFCE): Accounts for nearly 60% of India’s GDP, representing individual spending.
- Gross Fixed Capital Formation (GFCF): Represents investments to enhance the productive capacity of the economy, accounting for about 30% of GDP.
- Government Final Consumption Expenditure (GFCE): Covers government spending on daily expenditures like salaries, contributing around 10% to GDP.
- Net Exports: Represents the difference between exports and imports.
- Private Consumption Demand and Government Spending: Together, these factors drive economic growth.
According to the FAEs, India’s GDP is projected to grow by 7.3% in the current fiscal year (2023-24), slightly faster than the 7.2% growth in the previous year (2022-23).
Conclusion:
The First Advance Estimates are a vital tool for policymakers and economists as they provide an early indication of the economic trajectory for the financial year.
The higher-than-expected growth rate for 2023-24 underscores the strength of India’s economic recovery and sets a positive tone for the upcoming Union Budget.
These estimates play a crucial role in shaping economic policies and investment decisions, contributing to the overall economic planning and stability of the country.