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Business News/ Politics / Policy/  Truth, lies and statistics
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Truth, lies and statistics

Niti Aayog has raised hopes of radical changes in economic policy but the new policymakers face one big constraint: the lack of up-to-date and accurate data

Photo: Pradeep Gaur/MintPremium
Photo: Pradeep Gaur/Mint

The red carpet rolled out for a new generation of economists in New Delhi, and the creation of a new policymaking body, the Niti Aayog, has raised hopes of radical changes in the design of economic policies in the country. But for any meaningful change to happen, the new set of policymakers will have to contend with one big constraint in policymaking in India: the lack of up-to-date and accurate data. At a time when the whole world has been gravitating towards evidence-based policymaking, and companies and organizations across the globe have been beefing up their data-mining abilities, India’s social data gathering apparatus has witnessed a steady decay.

As the charts below show, official Indian statistics have been beset with growing discrepancies. The most obvious example is the Index of Industrial Production (IIP), India’s official gauge of factory output. Over the past few years, IIP has witnessed wild swings that defy economic rationale. Volatility in the IIP data is not restricted merely to capital goods, but also extends to routinely used items such as battery chargers and UPS (uninterruptible power supply) systems. Economists within and outside the government agree that the gauge has become unreliable, but very little has been done to x this.

There are other lesser known but equally egregious examples. Consider the divergence between two social estimates of consumption in India, one based on household surveys and the other based on the national system of accounts. In every country, the two estimates are likely to differ by a small margin. But it is only in India perhaps that the difference between the two estimates of national consumption expenditure is as high as 51%.

Even measuring the size of state economies accurately eludes India’s statistical agencies. e gap between the sum of the gross domestic product (GDP) of states and union territories and the GDP measured nationally is equal to that of a mid-size state economy such as Rajasthan.

Looking at the state of official statistics today, it is difficult to believe that India was once a pioneer in the use of statistical surveys. Under the aegis of the statistical genius P.C. Mahalanobis, the National Sample Survey Organization carried out the world’s first set of household surveys in the 1950s based on the principles of random sampling established in the 1920s and 1930s. The world has picked up on data-gathering techniques since then while India has fallen behind.

The past few weeks have witnessed an intense frenzy to reclaim the lost glories of ancient Indian science, real and imagined. It will be more fruitful if we seek to reclaim the heights of statistical science that a newly independent India scaled just half a century ago.

Volatile gauge

The capital goods sub-index has been the most volatile among all sub-indices of IIP. Even the consumer goods index has been volatile in recent years.

Most volatile items

While it is to be expected that data on heavy machinery will likely be a volatile series because of the lumpy nature of such investments, the volatility of such items as battery chargers and UPS systems is baffling.

Divergent consumption estimates

The divergence between the two official estimates of consumption—one from the National Sample Survey (NSS) and the other from the National Accounts Statistics (NAS)—has only increased in recent years. This difference was less than 10% four decades ago but is now as high as 51%.

Expectations and reality

The chart indicates that the trajectories of inflation expectations and actual inflation rate have moved in divergent directions over the past few months. For each month, the mean three-month forward expectations recorded three months ago in the Reserve Bank of India’s (RBI) household inflation expectations survey is considered to be the expected inflation rate for that month. It is anybody’s guess whether the survey is ill-designed or if household expectations have indeed become out of tune with reality.

A state gone missing

The sum of the economies of all states and union territories is less than that of the whole of India, and the difference between that sum and the whole fluctuates across years. The difference fell in 2012-13, but at nearly 4% of India’s GDP, that difference is still equal to the contribution of a mid-size state economy such as Rajasthan.

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Updated: 19 Jan 2015, 03:45 PM IST
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