The sharp dichotomy between the new national accounts data and industrial production statistics was once again evident last week when the index of industrial production pegged the growth of the country’s factory output at 2.8 per cent in 2014-15 as against the advance estimates of national income that painted a rosier picture of the manufacturing sector, estimating its growth at a healthy 6.8 per cent last fiscal.
“Does it mean that our earlier concerns of industrial slow down were misplaced? This is a complex question and the short answer here is NO….slow growth in production volumes, even if not accompanied by a slowdown in value added, can be a matter of concern,” said the Central Statistics Office in a report on the new series of national accounts.
Over the last few months, the agency has tried to dispel doubts over the accuracy of the new series of national accounts with a base year 2011-12 and it is simultaneously, working on two related projects – creating a back series for the new national accounts to allow comparisons with the old series and updating the methodology and base year for index of factory output.
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New IIP series:
While the IIP and the ASI data are no longer used as inputs in the national accounts and have been replaced with the MCA-21 database, a new IIP series with a revised base year of 2011-12 and an updated methodology is likely to debut by early next year. The CSO is hopeful that it would answer some of the missing questions on manufacturing sector growth.
“We are working on the new series of IIP, after which all macro-economic data will have the same base year of 2011-12. It is in line with the recommendations of the expert committee,” said an official.
The new IIP would be based on the recommendations of the Saumitra Chaudhuri committee and would include a fresh basket of items.
Terming it as a much more structured index, Chaudhuri said, “The new IIP series would address the previous weaknesses in the series and has suggested an annual review to address any problems that may arise. Its data would probably be close to the annual survey of industries or the corporate sector data.”
The committee had recommended a change in the weights as well as categorisation of use based classification of the industries. It had suggested doing away with the class of “basic” goods and continuing with groups of primary goods, intermediate groups, capital goods and consumer goods.
It also called for a new basket of goods based on items that have grown important over the past one year and an annual review of these items. So items such as mobile phone that have seen a huge jump in production will have a much higher weight.
Further, it recommended a larger factory size using data from the ASI and other sources such as private manufacturers registered with the ministry of company affairs. It also called for creation of a back series of three years to provide a comparison between the two data sets.
“We don’t know exactly how the new series IIP will behave and what kind of production data it would provide. But it will certainly capture industrial production better,” said Pronab Sen, chairman, National Statistical Commission.
A back series for the new GDP series will help in comparing data from the earlier series and put things in better perspective. When it released the new series in January, the CSO had only data for 2011-12, 2012-13 and 2013-14, and there was little room for comparisons on India’s growth in the post crisis years between the two series.
“At present, if you try to compare the two series of GDP data, it is like comparing apples with oranges as the new series is a complete break from the earlier series,” said a senior government official, adding that the CSO has now begun work on fast track to create a back series that would help compare data with the earlier national accounts series.
A team from the International Monetary Fund too is expected to give advice on creation of the back series.
While this would help private forecasters, analysts and even government ministries and the Reserve Bank of India, a major stumbling block for the exercise has been the lack of data on private firms.
“MCA-21 data is available only till 2007. But the back series has to be created starting for a much longer period and now we are trying to devise a mechanism to fill up these data gaps,” said the official.
The data from MCA-21 is crucial as it is one of the major changes in the methodology for the new series of national accounts and one of the reasons in the higher growth in the manufacturing sector as it vastly expands the coverage.
For instance, the CSO’s estimates in the new series for the years 2011-12 and 2012-13 were based on the analysis of 5.24 lakh non-financial private companies of MCA-21 as against the RBI data where in estimates were compiled on the basis of financial results of around 2,500 companies and the annual survey of industries that were used in the 2004-05 series of the national accounts.
The MCA-21 data has helped the CSO move from the earlier establishment approach to measure manufacturing sector growth to an enterprise approach. Under this, functions such as those performed in head offices and ancillary activities such as marketing and financial operations of a manufacturing unit are also captured under the manufacturing sector.
Though these assumptions have been hotly debated by some while others such as the finance ministry’s chief economic adviser Arvind Subramanian had termed it “puzzling”, the CSO has sent teams to work with the North Block and the Reserve Bank of India to understand it.