ET BureauA committee headed by Planning Commission member Saumitra Chaudhuri has reportedly called for complete overhaul of the index of industrial production (IIP), as also of the attendant data-revision processes. The move makes excellent sense, given that the index has been marked by volatility — particularly in key heads like capital goods — and is often seen as not quite reflecting the reality on the ground.
The panel has recommended that the constituent items in the index, and their weights, be revised annually rather than after five years. To wait that long to add and remove items in the index, and to change their relative weights, can indeed be misleading. The fact of the matter is that the structure of the Indian economy is fast changing, and the production of many items in high demand like mobile phones or automobiles would have gone up faster than the trend rate. Hence, the need to promptly revise the weights of items in the industrial index, based on the Annual Survey of Industries.
To address the issue of large swings and volatility in such heads as producer goods, the committee has proposed estimating capital goods output on the basis of expenditure incurred towards production each month, rather than focus on physical aggregates. This also seems to make sense, as, for lumpy capital goods items like turbines and boilers, it can take several months to complete production. Further, the plan is to put out seasonally-adjusted industrial data on a month-on-month basis, which is as per global practice.
However, while modernising industrial data collection and analyses, the Central Statistics Office also needs to bring out an index of services output; a set of leading indicators. Neither index brooks delay. Such reforms would do away with the corrections to the index that are now routinely made.
The panel has recommended that the constituent items in the index, and their weights, be revised annually rather than after five years. To wait that long to add and remove items in the index, and to change their relative weights, can indeed be misleading. The fact of the matter is that the structure of the Indian economy is fast changing, and the production of many items in high demand like mobile phones or automobiles would have gone up faster than the trend rate. Hence, the need to promptly revise the weights of items in the industrial index, based on the Annual Survey of Industries.
To address the issue of large swings and volatility in such heads as producer goods, the committee has proposed estimating capital goods output on the basis of expenditure incurred towards production each month, rather than focus on physical aggregates. This also seems to make sense, as, for lumpy capital goods items like turbines and boilers, it can take several months to complete production. Further, the plan is to put out seasonally-adjusted industrial data on a month-on-month basis, which is as per global practice.
However, while modernising industrial data collection and analyses, the Central Statistics Office also needs to bring out an index of services output; a set of leading indicators. Neither index brooks delay. Such reforms would do away with the corrections to the index that are now routinely made.
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