Provisional estimates set the base on which the current financial year’s GDP growth will be calculated.
Gross Domestic Product (GDP):
The GDP measures the monetary value of all “final” goods and services—that is, those that are bought by the final user—produced in a country in a given period of time (say a quarter or a year).
It is important to note that GDP maps the “final” goods and services, not the intermediate ones. As such, if a tree is cut to make three cricket bats then the final market value of those three bats is the number that gets added to the GDP, not the market value of the wood as it passes through different stages of processing (supply chain) to become a cricket bat.
Broadly speaking, GDP has four engines of growth in any economy.
In India’s case, for instance, the biggest engine is private consumption (C) demand from individuals.
This demand typically accounts for 56% of all GDP and is technically called the “Private Final Consumption Expenditure” or PFCE.
The second-biggest engine is the money spent on investments (I).
This accounts for 32% of all GDP in India; and is technically called Gross Fixed Capital Formation or GFCF.
The third engine of GDP growth is the money spent by the government (G) towards meeting its day-to-day arrangements.
This demand accounts for 11% of India’s GDP, and is called “Government Final Consumption Expenditure (GFCE)”.
The fourth engine of GDP growth is the money spent on “Net Exports” (NX).
The NX is nothing but the money spent by Indians on foreign goods (that is, India’s imports) subtracted from the money spent by foreigners on Indian goods and services (that is, India’s exports).
Since in most years India imports more than it exports, the NX is the smallest engine of GDP growth and is often negative.
So, GDP = C (or PFCE) + I (or GFCF) + G (or GFCE) + NX
What are Provisional Estimates?
In the past, MoSPI has released two “advance” estimates of GDP.
The first advance estimates (FAEs) were released in January and they expected India’s GDP to grow by 9.2% in 2021-22.
It was largely based on the data from just the first two quarters — April to June and July to September.
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.
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.
The provisional estimates include the first official estimates for GVA for the fourth quarter as well as the whole financial year.
The sub-components of GVA tell us which sectors of the economy are doing well and which ones are struggling to grow