Dissemination of economic data will facilitate a wider participation
It is not the first time that the reliability of official economic statistics has been publicly called into question. But Reserve Bank of India Governor D. Subbarao's well articulated and critical comments on the quality and availability of important economic data are in a separate league and ought to be viewed with all the seriousness they deserve.
The RBI is perhaps the most important official user of the macroeconomic data. Monetary policy in India is not explicitly mandated to keep inflation low and stable. Yet, it needs to choose a measure of inflation as a reference.
The Wholesale Price Index, despite its shortcomings, has emerged as the reference point.
The RBI also generates high quality economic data. Its estimates of inflation and economic growth are widely watched. On GDP growth, the RBI's estimates have recently tended to be more conservative than the official ones. In its annual credit policy statement (May 3), the RBI sharply lowered its growth projections to around 8 per cent for 2011-12.
Obviously, the central bank depends on the official statistics to a large extent and even while it makes its own assessment, as with growth and inflation, makes copious reference to the official statistics.
It is no one's case that officialdom is not aware of the shortcomings.
In fact, improvements in collection, collation and release of data have been taking place all the time. More than any other reason, the government itself needs reliable statistics to base its policy decisions on.
Besides, the government had agreed a few years ago to comply with the International Monetary Fund's Special Data Dissemination Standards. Almost ten years ago, a committee headed by C. Rangarajan had suggested improvements in the official statistics and a road map for reaching certain goals.
Despite all the nudging and commitment, the economic data generated falls short of what is needed for a modern, fast-growing and fast-integrating economy. It can only reflect on the complexity of the task.
Primary data collection in a country so vast is obviously a stupendous task. Analysing and making the data available at a reasonable time are again a herculean task. In these circumstances, the good work being done by the National Statistics Commission and other official agencies is lost sight of.
The government should seek to educate experts and lay people alike on the difficulties involved. A communication strategy, which inter alia stresses on the urgent need to spruce up the economic data and seeks widespread co-operation, should help in reducing the burden on those in charge of the statistics.
Talking of education, this column has for long stressed the need to make the common person aware of the intricacies of decision making in the government, whether economic or political.
Obviously, dissemination of information on the relatively arcane subject of economic statistics will facilitate a wider participation in economic decision making.
Outside interest on the Indian economy has never been higher. The country's macroeconomic data — the statements of the Finance Ministry, the RBI and others — are widely watched and interpreted.
The growing integration of India with the rest of the world is the main reason. That is why quality economic data matters so much.
The financial markets, especially the stock markets, are forever glued to data releases from India. Almost all businessmen need the data for a variety of purposes such as in their planning, formulating strategies and indeed in fixing production schedules. Consistent and reliable data influence business decision making positively.
Dr. Subbarao's critical comments extend to the entire gamut of economic statistics. However, he chose to buttress his points with reference to the three key ones — the GDP growth data, the Index of Industrial Production (IIP) and the WPI.
Citing concrete examples from the recent past, he said the data were neither reliable nor consistent. Extreme volatility as, for instance, in the IIP last year could mislead policymakers. The RBI underestimated its year-end estimate of inflation for March, 2011, pegging it at 5.5 per cent .The actual figure turned out to be a few percentage points higher.
The GDP growth figures — perhaps the most widely watched — have also proved to be unreliable. In February, 2010, the advance estimate of GDP growth for 2009-10 was at 6.8 per cent. Just three months later, it was revised to 7.7 per cent and again in February, 2011, to 9.1 per cent, a revision of over 30 per cent in a year. Even conceding that the GDP data go through stages and are, hence, open to revision, the magnitude of change is staggering.
As for relying on the WPI for monetary policy purposes, the Governor has pointed out that it is only a second best choice. The WPI is more like a producer price index and the only reason it is persisted with is because no viable alternative has emerged. Almost every other country relies on consumer price indices.
In India, the ongoing efforts on harmonising the various consumer price indices to arrive at one that is truly representative have not been successful so far.
Finally, efforts at updating the data through new methodologies for constructing the indices have not yielded the desired results.
The IIP has been revamped recently with its coverage extended and the base year brought forward. However, apart from not being able to overcome the deficiencies of the index it replaced, the new IIP might be already obsolete. Its base year is six years old and there have been frenetic changes in the structure of the industrial sector and manufacturing.