One of the most widely cited investment metrics in India is the data on investments reported by the Department of Industrial Policy and Promotion (DIPP), the nodal agency of the Union government for promoting and clearing investments.

But the DIPP data suffers from serious limitations, a close look at the numbers and the methodology reveals. A comparison with the private capex database of the Centre for Monitoring Indian Economy (CMIE) shows that the DIPP database has a smaller sample and fewer checks when it comes to verifying the data. This also explains why the trends reported by the two sources can sometimes vary dramatically, as the charts illustrate.

The differences in the two databases spring from the manner in which they are collected and verified. According to the DIPP annual report, all licence-exempt manufacturing enterprises which invest more than Rs10 crore in plant and machinery (Rs5 crore for the services sector) are required to file an Industrial Entrepreneur Memorandum (IEM) with the government. DIPP captures information for new projects based on the IEM filings, as well as Letters of Intent (LoI) or Direct Industrial Licences (DILs). The DIPP data on implemented (or completed) projects is based on part B of the IEM form, which an enterprise is supposed to file when commercial production begins.

CMIE has a lower threshold and captures all projects worth at least Rs1 crore in its capex database. It captures data from credible public sources and from the companies themselves. It also looks for specific information, rather than a broad announcement when considering if a project is to be included in the database (for example, where the investment is going to happen, what capacities are going to be created etc). This may mean that there could be some IEMs which may not have information specific enough for inclusion in the CMIE database. It also has more checks in place such as verification of promoter details using data from the ministry of corporate affairs (MCA) database.

The key reason why CMIE’s capex-tracker seems to be a more robust indicator of investment trends is its sheer size. While DIPP captures investments worth a little over Rs1 trillion worth of implemented projects in 2016, the total value of implemented (or completed) projects captured by CMIE is roughly six times that number. When it comes to new projects, the CMIE database is more than twice as big as the DIPP database. The DIPP had data on Rs4.1 trillion worth of new projects in 2016 compared to Rs8.69 trillion for CMIE.

Given that the DIPP data is widely used by policymakers, it may be worth expanding the scope of the database, and consider changes in methodology to make the data more robust.

Emails sent to senior officials at DIPP two weeks ago, and phone calls made to them subsequently seeking greater clarifications on their methodology did not elicit any response.

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