As the veracity of industrial growth data has drawn flak from RBI, chief statistician T C A Anant today said the central bank's concern is not baseless and asked it to give some practical suggestions for getting better results.
"The RBI concern is absolutely well-founded and as a principle user of this series they should raise concern. I would be glad if they give me some practical suggestions which would help to do something different that would be worth doing," Anant told PTI in an interview.
In its policy review on September 16, RBI had expressed concern over the volatility in the industrial growth in the last two months and doubted whether they represent the ground reality.
Raising doubts over Index of Industrial Production (IIP), RBI said, "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 in past two months raises some doubts about how effectively the index reflects the underlying momentum in the industrial sector."
IIP fell sharply to 7.1 per cent in June 2010. But it again rebounded in July with a growth of 13.8 per cent. In fact, the June data was also later revised down sharply to 5.6 per cent.
Anant, who is Secretary in the Ministry of Statistics and Programme Implementation, said the volatility in the IIP numbers is partly related to the obsolescence of its base year which is nearly 16 years old (1993-94).
"IIP is based on a fixed basket of goods and a fixed output of production entities which produce those goods. In case of capital intensive goods the volatility is most prominent," he said.
Central Statistics Office (CSO), which complies the IIP data, is in the process of coming out with the new series with base year of 2004-05.
The capital goods production in July surged by a whopping 63 per cent, from just 0.7 per cent in the previous month and 1.7 per cent a year ago.
Anant said the concerns of volatility in the IIP have been there for the past 15 years as it is related to the firm's accounting practice.
"Large capital goods items take time to produce. So in these types of firms, their production shows sharp blips based on when the actual production was logged. The blips will be maximum marked on certain point of time when the production is logged. This, when you put into the index, at times lead to volatility," he said.
Explaining the reason for huge difference between the revised figure and the provisional numbers, Anant said it is mainly due to capital goods sector, which is dominated by a few large entities.
Capital goods production growth for the month of July was revised down to the negative 0.31 per cent, from 0.7 per cent in June.
If the CSO cannot physically obtain data from some firms, it uses the previous months' figure for calculation, Anant said.
"The direction of exaggeration depends on the underlying trend that is there in a month-to-month figure. The bias of the adjustment would be based on the month-to-month trend. If the trend was downward in some sense, the correction would be downwards," he said.
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