Now that the finance minister has pronounced that the Index of Industrial Production (IIP) data is faulty and that the latest sharp fall in growth is a data error, does this mean the government will go back to the Centre for Monitoring Indian Economy (CMIE) which, till a few years ago, was responsible for collecting the data on IIP? It is not clear why CMIE’s services were discontinued, but presumably there was a good reason.
If so, one presumes that this issue has been satisfactorily dealt with — merely going back to CMIE because the official data is poor is not good enough. The commodity exchanges, it must be said, use CMIE to do the polling on spot prices of commodities and, till date, there have been few complaints about either the quality or the timeliness of the data.
Since the purpose of all data is to give early and correct signals on which way the economy is headed, the other issue that the government needs to ponder is what kind of signals CMIE data is giving. In the vast sea of pessimism about growth, both for this year and for next year, CMIE still believes the economy will grow at around 9 per cent this year. This is being projected on the basis of the data CMIE is collecting and then using that in its forecasting model. CMIE chief Mahesh Vyas is on record pointing out that while the official IIP data shows a downward trend, the data collated by him from balance sheets shows a robust industrial growth. Is this the sort of data the government is looking for? Of course, if CMIE is to collate IIP data, it will not be using balance sheet data any more, but will be getting output data from companies.
Quite apart from the issues of quality, it would be interesting to see what policy conclusions follow if, as the finance and commerce minister hope, a revised IIP (with a 2007-08 base?) shows industry continuing to grow instead of falling, as the current IIP indicates. At a time when industry and many in the government are in favour of a repo rate cut, a robust IIP would suggest no need for any such action!
Anil Seth, New Delhi
IT’s a problem
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Infosys’ lowering its guidance for earnings from IT/ITeS is proof that the global financial crisis is going to hit India’s export of services. This is contrary to the soothing noises made by top Nasscom officials who would have us believe that the financial crunch would ensure that US financial firms need even better quality data and other processing, and would turn to India for this. While this may very well be true in the medium term, it cannot possibly take place in the short term.
In any case, for this to happen, Indian IT/ITeS firms also need to be geared up to take the next step up the value chain. Expect a host of such lowered ‘guidance’ from all IT/ITeS firms in the weeks and months to come.
Sanjay Joshi, Pune