The Reserve bank of India (RBI) has said it cannot make policy decisions relying on the data provided by the government. RBI governor D Subbarao said on Tuesday the central bank has been facing severe headwinds on multiple fronts because of the erroneous data published by the government-from advance estimates of GDP to revisions in industrial production (IIP) numbers to the preference of WPI over CPI as the measure for inflation.
"We are handicapped by the reliability of some of the basic data that we need to use in policy calculations," Subbarao said while speaking at RBI's Statistics Day, and warned that poor quality data could potentially mislead policy calculations. "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," he said.
For example, in the post-Lehman era when RBI is in a high alert mode, there have been frequent revisions to data related to GDP, one of the most watched numbers for policy makers, investors and economists, not only within India, but also globally. Like in February 2010, the advance estimate for GDP growth for 2009-10 was pegged at 6.8%. Three months later, this was revised to 7.7% while in February 2011, the quick estimates pegged it at 9.1%-a change of over 40% within a year. "Therefore, policy that per force had to use information on advance estimate of GDP was fraught with the risk of underestimating the growth momentum," Subbarao said.
Economists outside of RBI with whom TOI spoke to also pointed out the problems they have been facing with the erroneous data published by the government. Given the recent track record of such data, these are seen with suspicion. But in the absence of any other alternative, they have to work with unreliable numbers.
A recent report by Siddhartha Sanyal of Barclays Capital pointed out a huge discrepancy between the rise in India's petroleum import bill and the rise in the crude oil prices. The report showed that there was a "surprising stagnation" in India's oil import bill since December 2010. "The average rise in the oil import bill was a mere 6% year-on-year during December 2010-April 2011, despite the fact that global crude oil prices rose more than 30% during that time," Sanyal said. "This raises doubts about the trajectory of India's oil import bill in the coming months," he added. Economists also pointed out some other recent incidents of serious lapses relating to publications of important economic data.
For example, in August 2010, the government's GDP growth data from the income side showed a stable growth of 8.8% while from the expenditure side it showed a miniscule growth of 3.8%. As questions were raised, within a couple of days, the GDP growth data from the expenditure side was revised to about 10%.
Economists also pointed out that of late weekly as well as monthly inflation data are regularly revised by a substantial margin, and mostly on the upside. This, in turn, fails to give analysts and policy makers the true state of the economy apart from hampering policy decisions, they said.
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