Govt data errors prompt review of IIP methodology

When T C A Anant took over as India's chief statistician, he had thought that base revisions for key indices would keep him busy. Four months later, he has a much longer and far more complex to-do list.

The fiasco over error-ridden national accounts for the first quarter of the financial year has prompted Anant, who used to teach statistics at Delhi School of Economics, to initiate a documentation of processes. Besides, at the behest of the National Statistical Commission, he has ordered an audit of the methodology of preparing the index of industrial production (IIP).

Other indices are likely to face equally intense scrutiny. "What the particular incident (GDP errors) has brought out is that there are weaknesses in some of the documentation, which follow various processes in the generation of different estimates," Anant told Business Standard in an interview.

While Anant is grappling with GDP, officials in not-so-distant Udyog Bhawan have their own set of problems. Just when they thought the new wholesale price index (WPI) series would address the Reserve Bank of India's concerns on inflation numbers, Mint Road and independent analysts described IIP data as "volatile".

The latest IIP data, which showed that the index had slipped far below the most pessimistic estimates — to 5.6 per cent in August from 13.8 per cent in the previous month — added to the criticism.

Department of Industrial Policy and Promotion officials, who work on WPI and IIP numbers, blame the small sample for the factory output numbers. The current IIP series is based on data received from 3,900 sources. The new series will get information from around 4,800 sources and the coverage will expand to from 213 products to around 300.

Industry department officials said the problem was unlikely to be addressed completely. For instance, the cable manufacturing sector in July pushed up capital goods production to 63 per cent. In August, the same component dragged down capital goods growth to minus 2.6 per cent.

"With a sample of seven to eight companies, the performance of one company can make all the difference," an official said. And, that is exactly what happened. Data from one company pushed up the growth rate by nearly 40 percentage points in the capital goods sector.

Officials admit this has happened in the past and, at the time of the last revision in 2000, some items had been removed from the index for this reason.