Hole in the data

Govt needs to focus on collecting reliable data. Revision of January IIP numbers underlines this

The sharp revision of industrial production data for January from 6.8 per cent to 1.1 per cent is a reminder of how bad data collection and collation has become in recent years. The index of industrial production IIP has suffered from data issues in the past. The index of production for capital goods jumped up sharply a few months ago when it turned out that it was concentrated in insulated tubes. More recently,export data turned out to be erroneous. Incorrect data has serious implications for policymaking. For instance,the case for a cut in interest rates is based on the slowdown seen in IIP growth. If the January IIP data was wrong,there is no reason to believe the rest of the data either. The mistakes might still be in the data and it has not been revised. It is of prime importance that the government focuses on proper data collection. Incorrect procedures in either the collection or collation of data should be addressed instantly.

In recent years,particularly since 2008,it is becoming harder to believe the IIP data. This is because it diverges sharply from other data series. For instance,IIP data diverges from what export growth numbers suggest. Exports have been growing at above 20 per cent in dollar terms for most months last year. But IIP manufacturing data has been showing decelerating growth. But even the export data is of poor quality,so it is difficult to know what to believe.

The finance minister has expressed bafflement at the January data revision. The government must take immediate steps to ensure that the quality of data it releases is reliable.