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There’s a twist in the old tale about lies, damn lies and China’s statistics.

A senior official at the International Monetary Fund (IMF) has told this newspaper that China’s economy is growing much faster than what the official numbers suggest. Jahangir Aziz, head of the Asia and Pacific division of IMF, says that China could be growing at around 16% a year. This is because China underestimates its growing services sector.

Similar concerns are being raised in India as well—and for a good reason. The ever-louder calls for interest rate cuts are based on data that shows that industrial growth is tapering off, consumer demand is soft and inflation is at a five-year low. But this is not the sort of data that economic policymakers are likely to depend on—or at least that’s what we hope.

A recent story in The Economic Times drew a distinction between the official data on production of consumer durables and the actual experience of companies in that sector. While the official numbers show that production of durables is down to 3.2%, the major companies making the gizmos that sit in our homes report strong growth in production.

The gap between data and reality arises from the fact that the index of industrial production was last tweaked in 1994, when Indians bought typewriters rather than mobiles. The dramatic shift in production and consumer demand has been ignored by the national bean counters. When they say that the production of consumer durables is weak, we know a lot about durables that were bought in 1994 by the average household, and very little about those that are bought today. The same can be said of the inflation numbers—with artificial suppression of domestic fuel prices making the headline numbers even less representative of the underlying reality.

This is an issue that Prime Minister Manmohan Singh has often complained about. In December 2006, at a function to mark the platinum jubilee of the Indian Statistical Institute at Kolkata, he said: “…due to over–dependence on the administrative set-up and traditional records, the system has not been able to keep pace with changing times. Liberalization has also ushered in significant structural changes in the economy—changes that need to be captured by the statistical system."

The new National Statistics Commission that has been set up to drag India’s data systems into the 21st century has its task cut out. The data that is generated by various official agencies is dated, inconsistent or irrelevant. This is a serious obstacle for decision-making in both the private and public sectors. Most economic and business analysis starts off by measuring the correlations between various variables on output, consumption, prices and employment. Poor quality data is likely to harm both the analysis and the policies that are based on it.

In 1963, when Milton Friedman visited Hong Kong, he asked the man who oversaw the British colony’s economy in the 1960s why there were hardly any government statistics available. “If I let them compute those statistics, they’ll want to use them for planning," replied John Cowperthwaite, an ardent free marketeer.

National economic statistics were born in the 1940s to help manage the war effort in the US and Europe, and later used to build national economic plans. So, perhaps Cowperthwaite’s view is not as eccentric as it may seem at first glance. But while there is no reason to worship every bit of data thrown at us by the government, there is no denying that credible numbers will help economic activity and policymaking.

How reliable is India’s economic data? Write to us at views@livemint.com