Rajeev Malik: Malady of interpretations

The controversy surrounding the official change in the reporting of the monthly international trade data raises important concerns about the long-standing issues about the quality of data and the official interpretation of the data.

Tracking high-frequency trade data is becoming more important as India increases its global trade linkages. The performance of exports indicates the pace of activity in the export sector and its likely impact on industrial production, and whether movements in the rupee could impact shipments. Import data can give hints about the underlying strength of demand in export and domestic industries. Finally, the monthly trade balances offers of the earliest hint about the quarterly current account balance.

Starting April this year, the Ministry of Commerce and Industry reported over-year-ago (oya) growth rates for exports and imports by comparing provisional data for the latest month and the corresponding month last year. The new approach is a departure from its previous practice of comparing provisional data with final data. The consequent differences in growth rates is staggering: exports apparently surged 32.4 per cent oya in the April-June quarter on the new approach versus a growth of 16.9 per cent on the more commonly used comparison. No justification was offered for the change in methodology.

The widely practised approach is to compare provisional with final data to arrive at growth rates. Prior data undergo revisions but the key is to use the latest revised data. The ministry deserves credit for cutting the time lag in announcing the headline trade data. However, this should not be at the expense of incomplete coverage that warrants substantial revisions. If officials are concerned about the magnitude of revisions, it is better to improve the provisional estimate than to change the way of calculating growth rates.

The following suggestions could help the ministry to improve data quality, which in turn could fuel better analyses:

The ministry appears to have slipped from sticking to a pre-announced schedule of announcing the monthly trade data. It should get back on track quickly.

For some strange reason, the ministry does not announce revised monthly data, despite the cumulative year-to-date data including such revisions.

The current substantial time lag between the announcement of headline trade data and the details by country and by products should be reduced.

The monthly press release on trade data should mention any one-off factors, such as port or truckers' strike, or some other hiccups that cause above-trend volatility in the data.

Increased scrutiny of economic data by financial markets warrants that the ministry communicates changes in data reporting effectively, and in a timely manner. The ball now is now in the ministry's court to rise to the occasion.

The author is VP and senior economist with JP Morgan Chase Bank, Singapore. The views expressed here are personal.