Context: RBI’s economic activity index (EAI) has nowcast GDP growth for Q3 (October-December) FY24 at 7 per cent, according to an article in the central bank’s latest monthly bulletin
What is the Economic Activity Index (EAI)?
- The economic activity index is an efficient predictor of advanced quarterly GDP estimates of the NSO.
- This index uses twenty-seven monthly indicators representing industry, services, global and miscellaneous activities to gauge the underlying state of the economy.
- These indicators, directly or indirectly, cover a wide spectrum of domestic activities.
- Many central banks have developed “nowcasting” models, which are used to predict the present, the very near future and the very recent past almost on a real time basis using regular high-frequency data releases on activity indicators.
Why the Need?
- Official GDP estimates are available with a lag of almost two months and these delays pose constraints on optimal policy decisions.
- In this regard, high frequency indicators of economic activity, which are available with shorter lags, offer an alternative for real-time tracking of the economy to aid forward-looking policy.