Data distortions

How reliable is our industrial output data? The question crops up from time to time. As pointed out in a Business Line article (‘Behind the industrial growth numbers’, April 14), the IIP data for 2011-12 diverge sharply from that of the Annual Survey of Industries (ASI), which is considered to be more accurate. While the former showed 3 per cent growth, the latter put it at 10.4 per cent! The underestimate seems to apply to the current period as well, if the RBI data on the corporate sector’s order books, inventory and capacity utilisation are taken into account. (A caveat: understated industrial growth does not mean all is kosher; it only shows that we need much higher rates of growth to absorb the workforce.)

The Central Statistics Office has acknowledged that IIP data are subject to major revisions and short-term fluctuations. Former Finance Minister Pranab Mukherjee was “baffled” by how the factory output for January 2012 could be revised from 6.8 per cent to 1.1 per cent. In October 2009, P Chidambaram expressed his misgivings over the IIP at a time when the numbers were low. He was right: the IIP does have a downward bias. This is for two reasons: the organised sector units are not meticulous about reporting their performance and the index does not adequately take into account the MSME (micro, small and medium-scale enterprises) sector. While the IIP is compared with ASI figures to test for accuracy, this can work only with respect to the organised sector. The annual output of unregistered units, shown in National Accounts Statistics, is calculated by using estimates of value added (output minus input) from enterprise surveys carried out once every five years and extrapolating from them by using dated sectoral weights and price indices – that too, in an open economy where macro variables are constantly subject to change.

If industrial output numbers are hazy, so are employment estimates. The data gaps extend to the services sector which, oddly enough, stays buoyant, regardless of the rest of the economy. What all this amounts to is policymaking without adequate information on output, employment and much else. The Government owes it to itself, industry, investors and the people to present a more credible set of numbers — for which it must step up budgetary outlays across ministries and infuse a sense of urgency in the working of the National Statistical Commission. We are short on macro data on the corporate sector and capital markets. The Institute of Chartered Accountants of India and SEBI should act on this matter. The income-tax department should provide data on income distribution, for which we now fall back on household expenditure! Let’s face it: the Indian economy is a machine that is not understood at all. This state of ignorance is unacceptable.

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