Dealing with data when he was the Reserve Bank of India governor, as the Finance Commission head and now as the chairman of the Prime Minister’s Economic Advisory Council, C Rangarajan finds the index of industrial production numbers (IIP) for January a serious handicap. He tells Dilasha Seth the IIP should be rectified not only by looking at weights, but also reporting of data. Edited excerpts:
The IIP growth figures for January were scaled down sharply to 1.1 per cent from earlier estimates of 6.8 per cent. The reason given is wrong reporting of sugar data, which stood at 58.09 lakh tonnes, not the earlier reported 134.08 lakh tonnes. What is the reason for the confusion in IIP data?
IIP data is constructed from the information supplied by various sources to the ministry. Therefore, the credibility of the data depends on the manner in which the data is collected. In this case, the discrepancy came from sugar data. While compiling, no one examined why there was an extraordinary increase in the index for this particular component of the IIP.
A committee has now been appointed to look into the whole construction of IIP. Hope it would not look at just weights, but also the manner in which information is procured for various sources. We need to examine the methodology and procedure adopted for computing data. We also have to examine the controlling and monitoring of data to check if there is any outlier or sharp deviation in any component of the IIP.
Could this goof-up have been checked?
The capital goods industry data showed extreme volatility for a long time on a month-on-month basis. Therefore, a committee has been set up to check this. There was a large increase in consumer non-durables in January’s data, but this was not detected. This needs to be checked.
Earlier, GDP data for the first quarter of 2010-11 was miscalculated because the price deflator was wrongly used. The export data showed a major discrepancy in the last financial year. How can policymakers, or those interpreting data, rely on these numbers for assessing the economy?
This is a serious handicap for policymakers, and can lead to wrong policy decisions. The time has come to look at data carefully. It is important not to look at just the methodology of computing data, but also the sources and the process of data collection.
Even now, figures like publishing, printing and reproduction of recorded media are shown to have risen 60.1 per cent in February. Can these figures be relied upon?
You see, the weight of these things is not that high. However, sugar, on the other hand, had a fairly big weight. So, if there is any sharp increase or decrease, we must look at the weights.