The government’s chief statistician, T C A Anant, had the embarrassing duty of informing the public that the January figures for the index of industrial production or IIP were, in fact, a massive overestimate. “It has been detected at the time of compilation of IIP for the month of February, 2012,” his statement read, “that during the compilation of IIP for January, 2012, the sugar production was wrongly taken as 134.08 lakh tonnes in place of actual figure of 58.09 lakh tonnes. This wrong figure was taken because of incorrect reporting by the directorate of sugar in the ministry of consumer affairs, food and public distribution.” It is a shocking reflection on the quality of data available to policy makers that an error of this magnitude should have taken place. In the first place, it shows that an industrial-production series, which depends upon so many different processes in different departments with little or no stake in the eventual outcome, will find it difficult to ensure reliability. What, after all, can the government’s statisticians say to arm-twist the directorate of sugar?
Even more worrying is the degree to which it has altered the January IIP. The original figure was 6.8 per cent; after the new numbers for sugar production are taken into account, it is 1.1 per cent. If a single error in a single industry causes a change of this magnitude to the headline figure, it is clear that the data it is being based on is narrow. It also becomes difficult to argue that the IIP is a usable reflection of actual industrial activity when it has been shown up as having such a limited base. It is, therefore, almost impossible to build credible analysis on the basis of a series so volatile, so shallow, and so unreliable. Can observers, for example, deduce that India’s economy is on the mend, given that the February figure for the IIP shows a growth of 4.1 per cent year-on-year, compared to the revised figure of 1.1 per cent for January IIP growth, year-on-year? The finance minister has correctly noted that overhaul of the IIP is overdue. Action must be taken, and soon.
The Reserve Bank of India is supposed to review its monetary policy on April 17, a few days from now. Well-crafted monetary policy would have to take into account whether or not India’s economy seems on the cusp of a recovery. The original numbers for January’s industrial production seemed to indicate it was. The revision downward would tend to lead to the conclusion it is not recovering — except that the February numbers, while low, are definitely higher. How can policy be formed in this data environment? Unsurprisingly, RBI Governor D Subbarao, speaking on Statistics Day in July last year, called aspects of the IIP series “analytically bewildering”. The only certainty is that 4.1 per cent is low. The secondary sector is struggling, especially those industries related to the production of capital goods. This is a bad sign for the future, and can be directly traced to the delays in investment that have come from paralysed government and interest rates that are too high for comfort.
