Govt admits it bloated Jan IIP data from 1.1% to 6.8%

Official data collection is proving to be a minefield.

The government on Thursday formally admitted it had faltered on industrial growth data for January by overestimating sugar production more than two times.

The government said it was a "one-off aberration".

The January industrial growth figure was drastically revised down to just 1.1 per cent against the earlier 6.8 per cent.

That led government advisors, economists and industry players to raise questions over the very relevance of the Index of Industrial Production data.

The goof-up could be bigger and data in other commodities are likely to have been misreported as well, since sugar has just 1.5 per cent weight in the IIP, economists say.

It can explain less than half of the 5.7 percentage-point over-reporting in the provisional index for the month of January.

This was the third blunder in government data collection in a year and a half, the two other being on exports last year and GDP numbers for the first quarter of 2010-11.

Meanwhile, provisional February industrial growth stood at a lacklustre 4.1 per cent, against 6.7 per cent a year ago. It was driven mostly by capital goods, a volatile component in IIP.

The low final January figure and moderate industrial growth in February would both have a bearing on the monetary policy, finance minister Pranab Mukherjee said.

He said the finance ministry and the Reserve Bank of India would work together to take steps to revive the investment climate.

That raised hope of a rate cut by the central bank. The Reserve Bank will come out with its monetary policy for 2012-13 on April 17.

In January, sugar production was wrongly taken as 13.41 million tonnes in January against the actual figure of 5.8 million tonnes. Processed food production was initially shown to have risen 92.6 per cent in January.

"My guess is 95 per cent of the change is on account of sugar.

"There may be some small adjustments, which may be on account of other reports," chief statistician T C A Anant told reporters.

"Sugar has just 1.5 per cent weight in IIP, but if you multiply 1.5 per cent with a certain number, the size makes the difference," Anant said.

But, can an item with just 1.5 per cent weight in the index pull down the overall figure from 6.8 per cent to just 1.1 per cent?

"Yes, it can," said former chief statistician and currently principal advisor to the Planning Commission, Pronab Sen.

However, other economists did not agree.

Chief economist of the Federation of Indian Chambers of Commerce and Industry Soumya Kanti Ghosh said only 2.4 percentage points of the 5.7 percentage-point downward revision in January could be explained by sugar misreporting.

There may be misreporting in other products in consumer non-durable goods, otherwise that sector's growth could not have been revised to just 11 per cent from the earlier 42.1 per

cent.

Processed food production, a category within consumer non-durable goods, was initially shown to have risen 92.6 per cent in January and final figures showed it at just 17 per cent.

"It is unlikely that only sugar could have brought down the consumer non-durable numbers from 42 per cent to 11 per cent. There may have been errors in reporting for other products, too, of which we do not have the information at this point," said CARE Ratings chief economist Madan Sabanavis.

Chairman of Commission for Agricultural Costs and Prices Ashok Gulati agreed that sugar misreporting could not solely explain such a sharp revision.

Prime Minister's Economic Advisory Council chairman C Rangarajan said incorrect reporting of data may lead to wrong policy decisions.

"It will come as a shock to investors who have taken any decision based on the January IIP data," said Sabyasachi Patra, executive director, Manufacturers' Association for IT Industry.

Adi Godrej, chairman, Godrej Group said, "The data swings are wild and this clearly doesn't bode well.

"Yes, India Inc in general is impacted because you do look at the data when taking key decisions."

"This is a one-off error," Anant said. "We have reiterated our request to all the agencies that they have to supply us data in the agreed time frame so that such errors do not recur."

Incorrect sugar data were reported by the directorate of sugar in the ministry of consumer affairs, food and public distribution, a statement by the ministry of statistics and programme implementation said.

"All of us, including the RBI governor, is concerned about the volatility of the data and its frequency.

"It throws everybody in a tizzy and has rattled even the central banker.

Revision per se is not bad but the problem is the deviations are huge. Fortunately, the government is acknowledging it quickly.

Also, another saving grace is the fact that on Thursday the economy is wide and sophisticated enough to have plenty of proxy signals to cross-verify," said Dr Ajit Ranade, chief economist, Aditya Birla Group

Isaac George, CFO, GVK Power and Infrastructure, said, "Statistics in this country have always been taken with a pinch of salt.

"Unlike in the developed countries, economic statistical information has been susceptible to a lot of discussion and debate. If they do blunders like revising things, they are not sending the right signals."

M S Unnikrishnan, managing director and CEO, Thermax, said, "A fall from 6.8 per cent to 1.1 per cent is a surprise and certainly will be a setback to the credibility of the numbers. And, this is not the first time it has happened.

"This has happened earlier as well. If the trend continues, faith in the IIP numbers will be eroded."

Dabur CEO Sunil Duggal said, "This is a disturbing trend. These violent swings in data point to problems in gathering and collation.

"This is a serious issue and why these discrepancies are happening should be ascertained."