Revision of data, including inflation numbers, with such wide variation, does not augur well for a country like India known for leadership in technology and innovation

The Ministry of Commerce & Industry (MCI) periodically releases economic data relating to inflation, gross domestic product (GDP) growth, index of industrial production (IIP). But many times, these basic figures do not reflect the correct position, as MCI first publish provisional figures and thereafter, with a delay of one to two months, release the final figures which are generally found to be in variance with the provisional figures.
 

Last week, on 14^th of November, data relating to wholesale price index (WPI) for ‘all commodities’ for October 2013 was released. The annual rate of inflation based on WPI rose to 7% (provisional) as compared to 6.46% (provisional) for September 2013.
 

Meanwhile, on the same day, the annual rate of inflation based on final WPI for August 2013 has been revised upwards to 6.99% from a provisional figure of 6.10% reported on 16 September 2013. Obviously, the provisional figures for August 2013 released by the MCI on 16^th September were faulty and the final improved figures have now been released after a gap of two months. The variation between these two figures is as high as 15%, which is not a happy situation in the present environment. Is there no tolerance limit for such variations? 
 

Similarly, the IIP for August this year has been revised to 0.43% from the provisional estimate of 0.60% announced earlier. These revisions in economic data have been going on for long without any rhyme or reason, and the Ministry appears to be immune to these aberrations.
 

It is a well-known fact that the stock market, securities market, commodities market and even the foreign exchange markets react to these economic data sometimes violently and speculative activity in all these markets get heightened by the faulty or inaccurate data published by the MCI, causing upheaval in the economy.
 

It does not stand to reason as to why the officials cannot collate accurate market information in the first instance itself, as revision of data, with such wide variation, does not augur well for a country like ours known for leadership in technology and innovation.
 

RBI governor had questioned the reliability of economic data
 

As early as in July 2011, the then Reserve Bank of India (RBI) governor, D Subbarao had questioned the reliability and frequent revisions of some of these basic data which are vital for all policy decisions of the central bank and the government. “The RBI’s policy formulation is handicapped by frequent revisions to data. We make policies in real time and if the provisional data that these are based on are inaccurate, the resultant policies can turn out to be sub-optimal choices,” Subbarao had said.
 

As per media reports, he was even critical of estimates of GDP growth. For FY2009-10, the advance estimate of GDP growth rate at market prices from the expenditure side that came out in February 2010 was 6.8%. That was changed to 7.7% in the revised estimate in May 2010 and further to 9.1% in the quick estimate in February 2011. “The policy that perforce had to use information on advance estimate of GDP was fraught with the risk of underestimating the growth momentum,” Subbarao had said.
 

Despite all the criticism by the RBI, there appears to be no effort on the part of the department concerned of the government to improve the position by ensuring that the difference between the provisional figures and the final figures is as little as possible, if such the practice cannot be totally avoided. But to ensure credibility of this vital information about the state of the economy it is necessary for the government to find a way to perfect the system and totally avoid these aberrations and thus help the policy makers in achieving the desired objectives.
 

Lies, damned lies, and statistics" so goes the adage.
 

In the context of the wide variations in the figures, especially inflation data, published, whether the economic data periodically released by the government fall into any one of these categories, it is for you to decide. You be the judge!
 

 (The author is a banking analyst and he writes for Moneylife under the pen name ‘Gurpur’ )