Audit of official statistics is good for all stakeholders in the economy
Apr 21 2014, 2045
The government’s proposal to give teeth to the national statistical commission (NSC) by allowing it to audit government data on macroeconomic and other developmental indicators routinely put out by the various ministries is a welcome move and should be implemented by the next government without delay. There have been past instances of government data not reflecting the true picture whether relating to economic parameters such as GDP, index of industrial production (IIP), inflation and trade numbers or social indicators. The controversy surrounding the measure of poverty benchmark at an income of barely Rs 32 per day is just one example of how some of our numbers are far removed from ground realities, based on, as they are, poor sampling and analysis. There is also the example of the government releasing the provisional IIP number for, say April, while simultaneously releasing the final numbers for March, with a difference of over a hundred basis points between the two sets. Irrespective of whether such revisions are due to poor data collection techniques or any other reason, they reflect poorly on the government. How can a government commanding the entire resources of the state fail in its basic job of number crunching so as to project its real achievements? From the Street’s point of view, the reliability of important macroeconomic numbers has assumed significance since 2003 when the number of foreign institutional investors (FIIs) investing in the Indian financial market increased dramatically. Most FIIs look at the macroeconomic numbers and other developmental statistics released by the government before taking an investment call. Between 2003 and 2008, the financial market witnessed a secular bull run when minor discrepancies in the growth numbers were discounted both by the currency and debt markets without much noise. Instead, emphasis was placed on the broader trend and direction of growth. However, since 2010, when the Indian economy began to sputter, foreign investors, especially those investing in the local debt and equity markets started to run a fine tooth comb through all official statistics, withdrawing or investing million of dollars at will in case of even minor divergence between their own estimates and the numbers put out by the government. On its part, the government too has realised the importance of accurate projections for various stakeholders in the market. Hence, in order to avert market volatility caused by its own numbers, that have, at times, been inconsistent, it has discarded the practice of releasing macroeconomic numbers during trading hours. But, in doing so, government statisticians have only brushed their dirt under the carpet. A basic reason for unreliable numbers is the lack of coordination between various ministries and departments. Grant of audit powers to NSC should beef up data collection and analytical systems and set minimum benchmarks across various agencies. Also, an audit should automatically ensure updating of the various components that add up to make the macroeconomic numbers, thus reflecting the ground situation more realistically. Not only would that be good for investors and other stakeholders in the Indian economy, it would also help the government formulate new policies and programmes more elaborately and help it accurately assess their impact on ground.