Economics
Why in News: On August 31, the Ministry of Statistics and Programme Implementation (MoSPI) will release the so-called “Provisional Estimates (or PEs)” of GDP for the last financial year (2021-22).
What are Provisional Estimates and what is their significance?
- The provisional estimates are important because they will be the first formal estimates of how India grew in the full financial year 2021-22.
- In the past, MoSPI has released two “advance” estimates of GDP.
- The first advance estimates (FAEs) were released on January 7th and they expected India’s GDP to grow by 9.2% in 2021-22.
- Next, in end-February, the MoSPI updated the FAEs by adding data for the third quarter (October to December).
- These were labelled as the second advance estimates (SAEs). The SAEs dialled down the full-year growth to 8.9%.
- The provisional estimates (or PEs) that will be released on August 31 will go a step further.
- They will add the data from the fourth quarter (January to March) and thus provide the most complete picture of how India’s economy performed in 2021-22.
- The GDP growth in 2021-22 will tell us the extent of India’s economic recovery.
- Apart from telling us how robust was India’s recovery, the provisional estimates will also set the base on which the current financial year’s GDP growth will be calculated.
What to look for in provisional estimates?
GDP and GVA
- For any financial year, the two main variables of national income are GDP and GVA (or Gross Value Added).
- The GDP calculates India’s national income by adding up all the expenditures in the economy while the GVA calculates the national income from the supply side by looking at the value-added in each sector of the economy.
- While both the variables measure national income, they are linked as follows:
- GDP = (GVA) + (Taxes earned by the government) — (Subsidies provided by the government).
- As such, if the government earned more from taxes than what it spent on subsidies, GDP will be higher than GVA.
- If, on the other hand, the government provided subsidies in excess of its tax revenues, the absolute level of GVA would be higher than the absolute level of GDP.
- This set of data is based on the SAEs. But the provisional estimates will update all these data points.
GDP vs GVA
- GDP maps the economy from the expenditure (or demand) side — that is by adding up all the expenditures.
| GDP = private consumption + gross investment + government investment + government spending + (exports-imports). |
- The Gross Value Added (GVA) provides a picture of the economy from the supply side.
- GVA maps the “value-added” by different sectors of the economy such as agriculture, industry and services.
| Gross Value Added = GDP + subsidies on products – taxes on products. |
In 2015, India opted to make major changes to its compilation of national accounts and decided to bring the whole process into conformity with the United Nations System of National Accounts (SNA) of 2008.
- Change of base year from 2004-2005 to 2011-2012
- Replacing Factor Cost with Market Prices
- Broadening of data pool
- Improved coverage of financial corporations in GDP estimation (like stock brokers, stock exchanges, asset management companies, mutual funds and pension funds).
Previous Year Questions (PYQs)
Q.1) Increase in absolute and per capita real GNP do not connote a higher level of economic development, if (2018)
- industrial output fails to keep pace with agricultural output
- agricultural output fails to keep pace with industrial output
- poverty and unemployment increase
- imports grow faster than exports
Source: Indian Express
