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CSO asks RBI to give practical suggestions to improve IIP data

CSO asks RBI to give practical suggestions to improve IIP data
PTI
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First Published: Sun, Sep 26 2010. 11 52 AM IST
Updated: Sun, Sep 26 2010. 11 52 AM IST
New Delhi: As the veracity of industrial growth data has drawn flak from RBI, chief statistician TCA Anant on Sunday said the central bank’s concern is not baseless and asked it to give some practical suggestions for getting better results.
“The RBI concern is absolutely well founded and as a principle user of this series they should raise concern. I would be glad if they give me some practical suggestions which would help to do something different that would be worth doing,” Anant told PTI in an interview.
In its policy review on 16 September, the Reserve Bank of India (RBI) had expressed concern over the volatility in the industrial growth in the last two months and doubted whether they represent the ground reality.
Raising doubts over Index of Industrial Production (IIP), RBI said, “Although the year-on-year growth rate for the first four months of the year remains robust at 11.4%, the high volatility in past two months raises some doubts about how effectively the index reflects the underlying momentum in the industrial sector.”
IIP fell sharply to 7.1% in June 2010. But it again rebounded in July with a growth of 13.8%. In fact, the June data was also later revised down sharply to 5.6%.
Anant, who is secretary in the ministry of statistics and programme implementation, said the volatility in the IIP numbers is partly related to the obsolescence of its base year which is nearly 16 years old (1993-94).
“IIP is based on a fixed basket of goods and a fixed output of production entities which produce those goods. In case of capital intensive goods the volatility is most prominent,” he said.
Central Statistics Office (CSO) is in the process of coming out with the new series with base year of 2004-05.
The capital goods production in July surged by a whopping 63%, from just 0.7% in the previous month and 1.7% a year ago.
Anant said the concerns of volatility in the IIP have been there for the past 15 years as it is related to the firm’s accounting practice.
“Large capital goods items take time to produce. So in these types of firms, their production shows sharp blips based on when the actual production was logged. The blips will be maximum marked on certain point of time when the production is logged. This, when you put into the index, at times lead to volatility,” he said.
Explaining the reason for huge difference between the revised figure and the provisional numbers, Anant said it is mainly due to capital goods sector, which is dominated by a few large entities.
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First Published: Sun, Sep 26 2010. 11 52 AM IST