The fact and the fiction PDF Print E-mail
Friday, 17 August 2012 00:59
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Using corporate data to validate IIP/GDP a good idea


Did industrial production in India grind to a near-halt in the quarter ending March, and fall into negative territory in the June quarter? If you go by the Index of Industrial Production (IIP), it would appear so; indeed, in June, the IIP contracted 1.8% over a year ago. But if you look at the top line growth of a common sample of around 2,200 corporates, you get a slowdown of around 30%—that’s a big slowdown, but certainly nowhere near as frightening as what the IIP shows. Indeed, the Sensex trading over 17,600, which is 5% higher than a year ago, suggests investors are discounting the IIP numbers as well. Given that the IIP comprises around 20% of GDP, this suggests the Q1 GDP out later this month will likely be below 5%—what the government is now planning, FE reported today, is to try and validate the IIP and other numbers with corporate data. That isn’t going to be a simple exercise. Private sector informatics firm CMIE had done one such analysis earlier and it found, for instance, that while sales for manufacturing firms rose just 1.6% in nominal terms in 2010, the IIP for that year grew a whopping 10.9%—given that IIP measures real changes, the difference would be even more stark once you discounted the India Inc sales to account for inflation.


Under normal circumstances, you could dismiss the India Inc data—indeed, on various occasions, that is precisely what the official system has done when confronted with the private sector data. The problem, however, is that there have been so many bloopers in the IIP data, only a brave man would set store by it. In January, the statistics ministry issued a press release saying it had entered an incorrect number for sugar production which saw the IIP rise to 6.8% instead of the actual 1.1%. Some months before that, brokerage house Centrum pointed out the July 2011 IIP surge was caused by an impossible 517% hike in insulated cables and wires—remove these, and the capital goods growth was just 0.3% in that month instead of the 63% reported. Even for the June 2012 IIP data, while the publishing and printing sub-index growth is now down to a reasonable 15%, it was a near-impossible 56% in the January data.

While reconciling IIP and India Inc’s financial data is easier said than done, it is evident a more permanent solution to the official data system is called for. Forget private sector individuals, if even RBI is constrained to comment on how unreliable the IIP is, there’s clearly a problem. A huge one, since its policies depend upon it. A negative June IIP suggests a rate cut immediately, but if you remove the volatile and unreliable capital goods part of it, the June IIP of 3.4% isn’t half as bad. Even Vijay Kumar, or Gagan Narang, would have a problem hitting a target they couldn’t see.


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