Quality of IIP Data

Indian government sharply lowered the industrial growth, which is measured monthly with a gap of one to two months through the Index of Industrial Production (IIP) for January, 2012 from 6.8% to 1.1% citing "incorrect reporting" and Mr. Pranab Mukherjee, Finance Minister had also ordered a probe into the reasons behind the misreporting.

Central Statistical Office (CSO), Ministry of Statistics and Programme Implementation (MOSPI) is India's apex statistical body and is responsible in compiling the IIP and also producing the more robust results concerning Indian industrial growth and other details through a comprehensive annual survey conducted by the help of National Sample Survey Office, MOSPI.  IIP is meant to be a short-term indicator of industrial activity, while ASI is a comprehensive survey of registered manufacturing units in the country. The ASI data comes with a lag of two to three years as it covers a large number of units across the country.  Growth in industrial production, measured by IIP and ASI, has consistently shown significant divergence. Manufacturing in IIP grew by 4.8% in 2009-10, while growth in gross value added under ASI was at 10%.  But there is a lot of time gap between the ASI data with its reference year.   This is the reason of having quick estimates of the growth in industrial production by help of IIP.  There had been many comments in the past on the results of IIP.  Many, even within the Ministry of Statistics & PI, have raised questions on the quality of ASI data too.  A few economists say a comparison between the IIP and ASI is not possible because of the varying nature of the data. However, they say there should not be such wide variations in the data.  Senior statisticians within the government say there is no systematic relationship between the ASI and IIP growth rates. The quantum of divergence between the two series does not follow any pattern and therefore emphasize on the need to base IIP on the superior ASI data.  The latest ASI data is available for the year 2009-10.

The CSO had earlier carried out studies comparing growth rates under IIP and ASI by using the value of output rather than the quantity, but it has been unsuccessful in reconciling the divergence.

Currently, the government tries to revise the base year of IIP every five years in tandem with the revision of the GDP base. The CSO had introduced a new series of IIP with a revised base of 2004-05 only a year ago.  And is now planning to change the structure of the Index of Industrial Production (IIP) more frequently to remove the rising doubts on its accuracy.  CSO has recommended now that the basket and base year of IIP be upgraded at regular intervals to address volatility in the data. It has also suggested making the Annual Survey of Industries the basis for revision of the IIP base year.

The CSO recommendation would comply with international standards set by the United Nations Statistics Divisions, which prescribes changing the weighting diagram of industrial statistics every year and the product basket later when more data is available.

But the main problem lies somewhere else and that should be addressed first.  Without that the problem will remain.  The main problem is that the data received every month is never complete.  Most of the marked and identified manufacturers don’t adhere to the time schedule and many other divergences are being noted.  Many a times the quantities produced by these manufacturers are being repeated month after another without proper scrutiny and other relevant considerations.  Some months the data gaps are huge, which leads to the anomalies mentioned.  Problems are also in ASI data too, but of different nature.  The production figures are normally matched with that of financial data provided to other wing of the Government.  It is a big problem for the ministry to match these two sets of data which are being produced by them.  Doubts are there with all the minds which are concerned with this industrial data.  But still we all are witness to the fact that our equity market (BSE and NSE) put a lot of cognizance to IIP data when it is first released.  In the recent past too these indices did fall heavily, if the IIP had shown downward industrial production. Latter, many forget and don’t bother its revisions as well.