Yo-yoing IIP numbers...

…Cast doubt on the veracity of data

To say that the August 2010 figures for the index of industrial production (IIP) numbers are worrisome is to state the obvious.

After recording strong growth of 15.2% in July, a fall in industrial growth to just 5.9%, the lowest in the past 15 months, would be cause for concern anywhere.

But the bigger cause for worry is that the August numbers cast doubt both on the sustainability of the recovery, and more important, on the veracity of the numbers.

After maintaining double-digit growth since August 2009, industrial growth has yoyoed this fiscal.

The scorching pace of growth of 15.2% set in April 2010 was followed by double-digit growth in May 2010, only to fall rather sharply to 5.8% in June 2010.

Growth recovered to a healthy 15.2% (revised upward from the earlier estimate of 13.8%) in July 2010, only to go down again to a 15-month low of 5.6% in August 2010, compared to the same month last year.

The see-sawing of industrial production, as suggested by the numbers, would seem to indicate that industrial recovery is not on even keel as yet. But is that a fact?

There is no way of knowing.

Frequent and fairly large corrections — the July number was revised upward from 13.8% to 15.2%, the April number was revised downward from 17.6% to 15.2% — as well as seemingly hard-tocomprehend fluctuations (growth in capital goods output is minus 2.6% in August, down from an incredible 72% in July 2010) make the data quality suspect.

Even if the variation is due to one or two suspect numbers, they take away from the robustness of the data. This was pointed out by the Reserve Bank of India as well earlier.
    
Any policy can only be as good as the data on which it is based.

No physician can medicate if the thermometer used to measure the patient’s temperature is faulty.

Similarly, no central bank or government can frame appropriate policies if it has no way of knowing whether growth is faltering or surging.

Our statisticians have no means of ensuring prompt and accurate submission of data as the rules under the Collection of Statistics Act have not been notified to date.

True, the IIP is only one among many tools policymakers use, but it is a vital one.