The Hindu Business Line : RBI chief laments unreliable, delayed job data

Mumbai, July 2 The Reserve Bank of India Governor, Dr D. Subbarao, has stressed the need for reliable nation-wide statistics on employment to help improve the formulation of monetary policy.

“Globally, trends in employment are one of the most important inputs in setting monetary policy response. Unfortunately, we do not have any reliable nation-wide statistics on employment. Data on factory-sector employment are available from the Annual Survey of Industry, but a large lag makes them virtually useless for monetary policy purposes.

“Farm sector employment data are also available at poor frequency and with long lags. Non-farm pay rolls capture employment trends in some economies. But, in India, data on organised sector employment, as obtained from employment exchanges, cover a very small part of the workforce. Against this backdrop, timely and accurate information on employment conditions will enhance our understanding of inflationary dynamics in the economy, and thereby improve the conduct of monetary policy,” Dr Subbarao said while addressing the third Annual Statistics Day conference here on Thursday..

Problems in analysis

Pointing to some of the problems the RBI faces in the area of data analysis, Dr Subbarao said, “Monetary policy transmission in developing economies such as ours is inhibited by structural factors and this vulnerability is exacerbated by the uncertain information context. The conduct of monetary policy will be better served by more firm data and less revisions”.

The Governor also highlighted the fact that divergences in alternative inflation measures complicate the conduct of monetary policy in India. Different weights are assigned to different items in the various price indices, thus creating a wedge between the inflation measures and moving them in different directions. In this context, the new price indices contemplated by the Government — CPI (Urban) and CPI (Rural) — will be helpful, he said. Dr Subbarao emphasised the need for a forward looking monetary policy and development of robust lead indicators of economic activity.

In the wake of the fast pace of structural transformation, the transmission lags are subject to constant change.Similarly, the magnitude of key variables such as investment, output and inflation in response to monetary policy impulses is likely to vary over time. It is important to develop robust lead indicators of economic activity, he said.

Dr Subbarao said another challenge for the RBI is to refine its database and analytical capabilities for stress tests. “The stress tests done on banks by the Committee on Financial Sector Assessment are a good beginning, but admittedly rudimentary,” he said.

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