RBI unhappy with high volatility in IIP data

Says this raises doubts about how effectively the index reflects momentum.

The Reserve Bank of India (RBI) has lent its support to those disgruntled with New Delhi’s economic data collection mechanism. Several economists have already expressed doubts over the GDP data that recorded India’s growth at 8.8 per cent in the quarter ended June 30. On Thursday, RBI also spoke out against the Index of Industrial Production (IIP) data collection mechanism.

“Although the year-on-year growth rate for the first four months of the year remains robust at 11.4 per cent, the high volatility over the past two months raises some doubts about how effectively the index reflects the underlying momentum in the industrial sector,” the central bank said in its mid-quarter monetary policy statement released on Thursday. In case of the GDP numbers reported on August 31, economists said the ‘supply side’ data used didn’t corroborate with the ‘demand side’ numbers that were calculated from private & government consumption, investment and net exports. The demand side showed a much lower growth, analysts pointed out.

The IIP numbers showed some slippage in June, which was the last month of the quarter, with the revised numbers showing growth to be a relatively sluggish 5.8 per cent. The trend was sharply reversed in July, with growth surging to 13.8 per cent, led by capital goods, which grew by 63 per cent, RBI said.
 

ROBUST RISE Index of Industrial production
(%)	July ‘09	June ‘10	July ‘10
General*	7.19	5.8	13.8
Mining	8.74	8.5	9.7
Manufacturing	7.37	5.8	15
Electricity	4.21	3.5	3.7
*Overall growth                                   Source: CSO

In case of the GDP numbers, the Finance Minister admitted to some “errors here and there” because the Central Statistical Organisation (CSO) data collection was often based on random surveys.

Data on inflation, IIP and GDP, among others, are critical for any central bank to initiate such policy actions as the timing and extent of any increase in interest rates. In particular, data like inflation and GDP has a crucial bearing on bond trading and movement of yields, as also spending and investment plans by companies and projections made by economists that are used by investors globally.