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| New data series seeks to bridge credibility gap |
| Devika Banerji / New Delhi Jun 18, 2009, 00:45 IST |
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Raamdeo Agarwal takes every economic data put out by the government with “a pinch of salt”. The director of Motilal Oswal, a leading stock brokerage, said: “We all know that the data doesn’t reflect economic conditions accurately.”
At least a part of the concerns of people like Agarwal is expected to be addressed by next year as four major economic indicators will have a set of new data series. Agarwal is pinning a lot of hopes on the initiative and felt that the credibility of economic data would improve several notches.
There are several things going for the new data series. This would be the first time that growth figures, or gross domestic product (GDP), the Index of Industrial Production (IIP) and the inflation figures of wholesale and consumer price indices (WPI and CPI) will together have a new data series with revised bases and increased data collection points.
The potential beneficiaries are policy-makers, government employees, economic forecasters and investors. Policy-makers such as the Reserve Bank of India (RBI) keep a track of the inflation index based on WPI to effect changes in key interest rates like the repo and reverse repo. WPI is also used to calculate annual changes to social security funds like dearness allowance granted to government employees. IIP data serves as a statistical device to capture the level of industrial activity in the economy and along with GDP spells out the health of the economy guiding investments.
Both the IIP and the WPI with the same base year of 1993-94 will have a revised base of 2004-2005, while the CPI with the most outdated base year of 1984-85 will be updated to 2008-09. The GDP figures, which are calculated at a base of 1999-2000, will be revised to 2009-2010.
The data is also of importance to potential investors who gauge indications from the GDP and the IIP figures to park funds in sectors that promise to develop and add to growth.
Another advantage of the new data series would be a reduced reliance on secondary or derived information sources. For example, the new GDP series will make use of MCA 21 online data of annual returns of companies, a system successfully implemented by the ministry of corporate affairs (MCA).
At present, the number of firms that are filing their annual returns in MCA 21 constitute one-fourth of the GDP. Adding to this, reliable state firms collect data which form about 21 to 24 per cent of the GDP. Therefore, in the new series, nearly half of India’s GDP figures will be collected from primary sources, increasing the credibility of the data.
Similarly, the WPI and CPI data will have more field workers to collect data from primary sources enhancing the credibility and effectiveness of the figures.
Analysts said that the problem with the current data series was that certain relatively new, yet rapidly developing sectors, were left entirely untouched. “We all know that a revised basket is essential for IIP and WPI because it is not capturing some very essential and relevant sectors like mobile phones and LCD television sets while still giving a lot of weightage to obsolete manufacturing like typewriters,” said Subhada Rao, chief economist with YES Bank.
The current series of IIP with base year 1993-94 covers around 543 items which constitute around 80 per cent of the output of the manufacturing sector. The scope of the current index is confined to mining, manufacturing and electricity without covering water supply and construction which have considerable contribution to the economy.
Finally, the common man might also reap the benefits of the new data initiative as the inflation data measured by the WPI is used to adjust annual changes in social security funds like, for example, the dearness allowance for government employees. Moreover, depreciation or appreciation in the value of assets is also dependent on inflation measurements.
What is not known, however, is the impact that the new data series will have. Pronab Sen, Chief Statistician of India, said it was very difficult to predict where the economy would be headed once the data series was implemented. “It is not necessary that the figures will go up, it can even go down,” he said.
However, many economists felt that the IIP data was bound to pick up when the base was revised and data collected from increased and more reliable sources. “It’s not easy to predict the trend of the other data but the IIP, which is currently underestimated, will have an upward movement,” D K Joshi, an economist with ratings and research agency Crisil India, said.
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