IIP, inflation data continue to fluctuate

IIP, inflation data continue to fluctuate

Last Updated: Fri, Jul 15, 2011 04:52 hrs
Inflation quickens; another rate rise expected

Chief statistician Ananth says new index must for improvement.

The Reserve Bank of India's problem in repeated corrections in the Index of Industrial Production (IIP) and in inflation data continues, without any respite in sight soon. While releasing the latest IIP and inflation data yesterday and on Thursday, respectively, the figures for previous months were revised.

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Despite a new series taking a base of 2004-05 against the earlier base of 1993-94, IIP data continued to show volatility. The April figure has been revised sharply from 6.3 per cent to 5.7 per cent. Also, capital goods growth has been revised down from 14.5 per cent earlier to 7.3 per cent. Inflation for April has been revised upwards to 9.74 per cent from 8.66 per cent, despite a new series.

Finance minister Pranab Mukherjee has shared the concern of RBI governor D Subbarao on the difficulties in policy formulation on this count.

The government's chief statistician, T C A Anant, said, "We fully share the concern that IIP is volatile and let me tell you this has been happening since the last 15 years."

To change this, the committee of secretaries had taken a decision to opt for unit record data by the Central Statistical Organisation, which would help in improving on volatility. "For that, however, you have to construct a new type of index, as it will be altogether a new IIP," said Anant.

He added a government committee on industrial statistics had formed a sub-group to study the methodological issues with IIP and suggest changes. The IIP, Anant said, was volatile because of the inherent manner in which the index was constructed.

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"It is on a fixed base, collected from a fixed number of entities tracked on a month-on-month basis, which makes it inherently volatile. A fixed base means new development can be accommodated only at the time of base revision, which is done only periodically," he added.

A fixed number of entities means that month on month, the data is collected from the same industrial units, which has its own lifecycle. Monthly data collection from industrial entities is in itself problematic as the data is given for a month, almost six weeks after the month ends. This means the data is collected from companies in the first week of June for May and so on.

"In many cases, it has been found that companies don't have data for May prepared so early in June. Hence, when that comes, it is included in the revised IIP estimates, which leads to volatility between provisional and revised figures," said Anant.

On the global practice, he said that in most places where data is collected on a monthly basis, it is volatile. However, countries with better business registries are capable of tracking minute details and come out with better numbers, timely supplementing the index.

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