India’s industry may have grown by 9.2% in the six months to September, but efforts to make this measure representative of industrial activity in the country have gone nowhere—two months after the country’s ministry of statistics announced the launch of an updated Index of Industrial Production, or IIP, there is no sign of the update, and government officials said it could be available only by March.
IIP measures industrial growth—the government publishes this data every month—but India badly needs a new measure. The current index measures growth using 1993-94 as a base: IIP for that year was taken as 100, and growth of various industries, depending on the weightage assigned to them, was added on to this every year. The Septmber value of IIP was 259.1.
INDEXING TROUBLE (Graphic)
The problem with this, said government officials who do not wish to be identified, is that it does not account for the emergence of new sectors. And it includes or assigns high weightages to industry sectors that are either no longer relevant or are not as important as they once were.
The officials said that because of these factors, IIP might be underestimating actual industrial growth.
For instance, typewriters have a higher weight of 0.2843 in the IIP than window air conditioners, which have only 0.1268. Over the past 14 years, production and sales of typewriters have declined to almost nothing, while those of air conditioners have soared.
The new index proposed by the ministry of statistics uses 1999-2000 as a base. And it will use wider and newer industries from the revised NIC (National Industrial Classification) 2004, a classification of industries in the country, according to a senior official in the Central Statistical Organisation (CSO), which is part of the ministry. The official asked not to be identified because the new index has still not been approved.
Not counted: Production in relatively new items such as LCD television sets and microwave ovens are not taken into account while video cassette recorders and black and white television sets are when computing IIP.
A government official, who did not wish to be identified, said the delay was because the industry ministry is yet to finalize the data collection mechanism for the new data that will be required for the index.
Fifteen source agencies, including various ministries, are required to furnish data to CSO within four-five weeks from the reference month.
Assuming the data is made available to CSO in January, the index, which is published with a six-week lag, will be available in mid-March, the official said.
“If we get an assurance about the data collection today, we can roll out the new IIP next month,” said India’s chief statistician and secretary in the ministry of statistics and programme implementation, Pronab Sen.
An official in the industry ministry said IIP was “the CSO’s baby and we are just data providers.” He declined to provide any information on the data collection and said, “all that is confidential.”
The index itself needs to be approved by the National Statistical Commission chaired by Suresh Tendulkar.
The new IIP will involve much more effort on the part of the sourcing agencies, such as the Department of Industrial Policy and Promotion (Dipp), the industry ministry body responsible for the data collection, and various other ministries such as textiles, steel and mines, and fertilizers, as data has to be procured from more establishments, almost double the number as compared with the current IIP.
Dipp had contracted the work to the Centre for Monitoring the Indian Economy (CMIE), a company that collates and mines macroeconomic and microeconomic data, in 2002. According to the CSO official, the contract ends this year.
Mahesh Vyas, managing director and CEO of CMIE, declined comment.
The IIP was last revised in May 1998, when the base year of 1980-81 was changed to 1993-94 and the number of industry sectors covered increased to 287.
“Everything takes time in government,” said Saumitra Chaudhuri, economic adviser, Icra Ltd, a credit rating firm. “Nobody, be it the CSO or Dipp, is immune to delays. Even the updating of the wholesale price index, which still has a base of 1993-94, has been badly delayed.”
Sen is keen to release the revised IIP as some consumer products companies have questioned the data, saying that it does not reflect ground reality. Consumer electronics firm Samsung Electronics India Pvt. Ltd said last month that even though it recorded double digit growth in sales in September, IIP data showed a 7.6% decline in production over the same month in 2006.
Suresh Khanna, secretary general, the Consumer Electronic and Appliances Manufacturers Association (Ceama), an industry body, said that “due weight is not given to this sector and its sharply increased production in recent years”. He added that there is no accounting of production of new items such as LCD or plasma television sets and microwave ovens. Instead, Khanna says, the IIP still gives undue weight to items that have gone out of usage such as video cassette recorders and black and white television sets.
While acknowledging that old products have been used in the existing computations, Sen says the new index will be more representative. He also said the sharp drop in the consumer durables sector this year was partly because Diwali, when sales of such products typically peak, came in November this year. Last year, it came in October. Many people buy products such as television sets in the run-up to this festival when companies offer discounts or have other promotions going on.
Still, the data is not representative, say experts.
“There are problems of under-representation in some sectors such as transport, durables and automobiles, sectors that have grown considerably in the past 10 years. As a result, the data may be unduly highlighting the decline or the growth in these sectors,” said Chaudhuri.
For instance, because production of typewriters or B&W TV receivers has ceased or reduced, the high weightage given to these sectors in calculating the IIP would result in a sharp drop in the index, said the CSO official. And, the index would not reflect the boom in the production of microwave ovens, personal computers and laptops, or plasma TV sets in recent times because they were either not being produced in 1993-94 or produced in very few quantities.
Sen and Chaudhuri said this “under-reporting” would not affect the general direction of IIP. The CSO official pointed to another problem: companies not filing their production data in time. “If we go to court against an establishment, the case is likely to be settled after 10 years, with a fine of Rs500... the gaps in data will continue,” the official added.
In June, the modified Collection of Statistics Act that provides for stiff penalties for entities that don’t comply with reporting norms, was passed, but this may be of limited use, the official said.
The new IIP has 25 sectors from the old basket because of “unreliability of data”. However, this decision, too, has to be approved by Tendulkar.