Official economic data is prone to criticism for their accuracy, timeliness, and reliability. This is more so when changes in economic policy and behaviour are frequent, as the statistical system may take time to adjust to these changes. As a result, it is possible that data does not reflect actual behaviour. There is not much of a problem with monetary or financial sector data, which is provided by RBI with a minimum lag. All the problems?if at all?are in real and social sector data, which are very important for policymaking.
Given the contextual importance, the data that has come in for a lot of criticism concerns inflation and industrial growth, which are available weekly and monthly, respectively. One problem for this could be the presence of an unaccounted large informal sector, which makes the official data inaccurate. The present estimation of the index of industrial production (IIP), which covers a portion of organised industry, cannot be treated as a proxy for the overall industrial activity in the country. But the criticism is not just on coverage alone.
There are other factors such as sharp revisions, changing importance of commodities in the IIP basket (which will have implications on their weights), and non-reporting by firms.
On the inflation front, wholesale price index (WPI) data is a crucial variable that needs to be tracked accurately. Good monetary and poverty alleviation polices depends on accurate inflation data. Unfortunately, the present inflation data based on WPI, which the markets track in the short term, does not reflect macroeconomic conditions. It is well known that the production process has seen a structural shift from agriculture and industry to the service sector, which contributes more than 55% to GDP. But the coverage of services in WPI inflation is minimal, making the data less realistic and representative.
Although services are covered to some extent by the consumer price index (CPI), we don?t have data that reflects the overall economy. Rather, we have a segmented CPI. Here, it is also necessary to note that India is one of the few countries that release WPI data every week, which is a major source of information for the monetary authorities in controlling inflation. This says that we had a reasonably good statistical system, but it has not evolved with the changing macroeconomic situation. Hence, although unfortunate, now there is a move to shift from weekly reporting to monthly.
On the social sector side, the debate on poverty and employment estimates appears to be never ending, given the complexity of data collection. It is necessary to understand that this data is very important for any public policy and it is easy to blame official statistics. But, given the complexities, it is extremely difficult to get accurate data in the real and social sector without any delays. There are also problems with sources of data. For some important variables such as balance of trade, we end up in getting contradicting data from two different official sources. This makes their use much more difficult.
One needs to also keep in mind that these problems are not particular to India alone. Such is the case in many developed nations, too. If we see the revisions to US unemployment data, one might not criticise the Indian statistical system that much?if not appreciate it. But there is definitely large scope for improvement in official statistics. On the other hand, is data provided by private agencies more accurate? My own experience shows that is not so.
There is need to strengthen the whole statistical system in India. At the early stage, the Indian Statistical Institute and others have helped in developing methodologies for the generation of important statistics for the Indian economy. But these institutes have not evolved much to the changing needs and behaviour of the economy. There is need for refocusing these institutes, complimented by new ones, to address the needs of policymakers.
We are demanding more IITs, IIMs and IIScs, why can?t we ask for more ISIs? There are lots of expectations on the newly set up National Statistical Commission, that it would evolve a policy to strengthen the whole process of data collection, processing and reporting to provide timely and accurate data for effective . We hope for the best.
?The author is an economist at Institute of Economic Growth. e-mail: nrbmurthy @gmail.com
