The Index of Industrial Production for October 2023, the government announced earlier this week, was at a 16-month high of 11.7 per cent. Yet, there’s no sense of achievement, nor any celebration. Even this government which revels in trumpeting the smallest bits of positive news, has chosen to ignore it. This is not at all surprising because the IIP index is no longer taken very seriously by anyone.

It’s been around for 86 years and refined and made more representative over that period. The econometric techniques used to build it have also improved. But the sad truth is that, with age, the Index hasn’t improved. Some would go so far as to say it’s become worse. There can be arguments over that but no one any longer denies that it is inaccurate in conveying the true picture of industrial activity in India. Little wonder then that the Purchasing Managers Index (PMI) has been seen as a better indicator. This is unworthy of a country with ambitions of becoming the third largest economy. The reasons for this are well known: an old base, high volatility and a very shaky link to value added. There are probably other reasons as well but just these three are enough to suggest that we need a completely new Index.

India’s technical competence for this endeavour is not in doubt. But commitment to the cause is. Indices depend on data collection. In the case of the IIP, it’s not collected but reported by a large set of chosen entities. If they don’t report or file wrong reports, no amount of technical corrections will help. This is the main reason why proxies like the PMI provide a less inaccurate picture. In that sense, the problem is more an administrative one. Unfortunately, we have tended not to solve it. . And the older it gets, the worse the problem becomes. It is this that must engage the government’s attention on an urgent basis. The problem of volatility in the items that make up the set of items used to build the index is different. It requires more frequent revisions in the basket of items. It is only after this that the econometricians can come in and solve the problem of linking to value added.

But there are two prior conditions. One is to end the lack of direct access of Ministry of Statistics and Programme Implementation to the industrial production data. It’s the only ministry with the adequate capacity to solve the problem. In the current system, the data from different sources are routed through other ministries, particularly the Ministry of Industry. The other is to use data scraping techniques — computer programs that extract data from other data — to build a better index from GST data. All this, along with the overhaul of the rest of the national statistics is going to require the attention of the prime minister. Nothing less will do.

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