Indians suddenly developed a taste for zarda (tobacco-filled betel nut) this January, if the industrial production numbers are taken at face value.
The Index of Industrial Production (IIP) for the month showed zarda output grew 127.3 over January 2011. It’s a similar story with newspapers and pens — the IIP showed the former up 57.1 per cent, year-on-year and pens up 31.8 per cent in January.
Also, we used marble tiles far more than earlier. Their production was shown to increase by 69.4 per cent. With all these items, there was also a 92 per cent jump in processed food production; it together led to a 42 per cent rise in consumer non-durables. This, in turn, pushed up overall industrial production to a seven-month high of 6.8 per cent in January.
In fact, if one takes consumer non-durables out of the IIP, industrial growth in January would be negative, says a YES Bank analysis. Of four use-based groups, two (capital goods and intermediate goods) contracted 1.5 per cent and 3.2 per cent, respectively. Within consumer goods, consumer durables output declined 6.8 per cent. All this has led to doubt on the quality of data. “With consumer non-durables, I do not see a reason for the extreme volatility, except for the problem with reporting,” said CARE Ratings’ chief economist, Madan Sabnavis.
The consumption of consumer-non-durables is inelastic in nature, he said. “Unless there is an increase in the levels of income, the production would not go up. And, I do not think that incomes have changed to (such) a great extent for a 42 per cent increase in consumer non-durables output,” he said.
The volatility in the IIP numbers can also be gauged from the fact that the December industrial growth figure was revised upwards from the earlier 1.8 per cent to 2.5 per cent. Sabnavis said with such high volatility, the IIP data was not reliable any more. “Even this 6.8 per cent may be revised down after a month. What is the reliability of such data? The way WPI (the wholesale price index) has been made monthly from weekly, the IIP can be made bi-monthly, if we cannot get accurate monthly figures,” he added.
C Rangarajan, chairman of the Prime Minister’s Economic Advisory Council, said: “Yes, we need to have a re-look at the IIP numbers. On a month-on-month trend, there are fluctuations and revisions.”
He agreed the 42 per cent rise in consumer non-durables for January had created a question mark on the IIP. “We need to see whether it is due to non-reporting or a wrong way of collecting information” he said.
