Government advance base year for industrial production, prices
Figures will give a clearer picture for monetary policy makers
India is dragging its factory data into the modern era, adding production figures for hormones and renewable energy as it ramps up efforts to provide a more accurate picture of Asia’s third-largest economy.
In a country that aspires to be an economic powerhouse, key data like monthly jobs and retail sales are still missing and analysts often question the quality of the government’s figures. Updating the base year for the index of industrial production and wholesale prices will modernize the data, give the Reserve Bank of India a clearer picture as it crafts monetary policy and help improve the country’s credibility in the eyes of overseas investors.
"If the signals from IIP are robust and more reflective of real manufacturing, it reflects the ground reality to policy makers,” Saugata Bhattacharya, Mumbai-based chief economist at Axis Bank Ltd., said before the update was released. “This will be more representative data for the RBI to look at when they decide rates.’’
The base year for factory output and wholesale prices will change to 2011-12 from 2004-2005, the government’s chief statistician TCA Anant said in Delhi on Friday. The new base for industrial production will swell to 809 items compared with 620 items previously and will include hormonal preparations, surgical instruments and electricity generation from renewable resources. The government is deleting 124 items including calculators and color-TV picture tubes, according to a statement from the Central Statistics Office.
Effort has been made to broaden the base of the data to ensure that “we get a much larger selection” for the new series, Anant said. The series will also be reviewed on an ongoing basis.
The data will be more comprehensive and give the central bank a better idea of the economy’s output gap -- the difference between potential and actual production -- allowing it to raise or lower interest rates as necessary, Pronab Sen, country director at IGC and India’s former chief statistician. The changes should also make it easier to measure productivity.
"If the IIP is out of whack, the productivity gap will be large and investments will need a boost,” Sen added, before the overhaul. “So this data should help RBI a lot.’’
India already altered the base year for the consumer price index to 2011-2012 and changed its method of calculating gross domestic product in 2015, a year after Prime Minister Narendra Modi took office. Bringing the base year of wholesale prices in line with the consumer measure will help bridge the divergence often seen between the two.
The new IIP series will also probably reduce volatility in the manufacturing data, often the bane of economists trying to predict demand, Bhattacharya said.
"It will give a clearer picture about capital goods and will be more in tune with GDP and GVA numbers," he said. GVA or gross value added is a key input for GDP and is used by the Reserve Bank of India to closely monitor growth.
Factory output rose 2.7 percent in March, while wholesale prices rose 3.85 percent under the new base year. On the old base year 2004-05, India’s factory output grew at 2.5 percent, government data showed. That’s higher than the 1.9 percent median estimate in a Bloomberg survey of 30 economists. India’s consumer price inflation meanwhile rose 2.99 percent, the lowest on record.