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Despite Changing The Goal-Posts, The Numbers Remain Cheerless, The Economy Still Looks Sluggish

Raman Swamy

It is generally believed that Indians are good at numbers. Vegetable vendors effortlessly add up numbers, quickly calculating the price of each vegetable even if the quantity purchased is in an odd fraction of a kilogram.  Most housewives know exactly how much cash in hand is there at home, how much has been spent and how much is left for the rest of the month – all without using pen and paper.  Every schoolboy keeps track minute-by-minute of the required run rate in an IPL T20 match even though it keeps changing with every dot ball or boundary. 

So, are Indians really good in maths and mental arithmetic?  Studies have shown that when it comes to small numbers and specific calculations involving four, five or six variable factors, most Indians, including uneducated rural folk, are indeed able to grasp and grapple with figures with impressive speed and accuracy.

But when it comes to macro-economic numbers, there is a strange kind of brain freeze.  The same vegetable vendor, housewife and schoolboy cricket enthusiast gives up without even making an effort when confronted with complex statistics like the Index of Industrial Production or the Wholesale Price Index. 

Not just ordinary citizens, even professional economists and financial analysts get confused when faced with macro-level statistical challenges involving production figures, prices, percentages, variations and trends pertaining to hundreds of products and services in the economy all taken together. 

When the government of the day decides to usher in a totally new starting point for estimating industrial output and inflation,  by changing the base year,   it becomes even more difficult for analysts to give their experts comments on whether it is a good thing or a bad thing that the goal-posts have been so drastically changed. 

On Friday, a new series of Index of Industrial Production (IIP) with a new base year of 2011-12 was launched.  The stated intention is to map economic activities more accurately.  The politically inclined suspect that the real aim is to fudge figures to camouflage the poor performance of the factory sector in the wake of demonetisation and adverse global factors. 

Till now, the IIP was calculated with 2004-05 as the base year. The new IIP base year, the official explanation says, is to align with the base year of other macroeconomic indicators such as the GDP. 

As everyone knows, or should know,  the IIP gives a broad outlook on output of various types of goods like basic, consumer and capital ones, which helps in gauging the level of economic progress and investments in the economy. 

Briefly, the key changes made in the IIP are as follows: 

1. The new series has a total of 809 items in the manufacturing sector in the item basket (405 item groups). The 2004-05 series had 620 items (397 item groups). 

2. A total of 149 new items like steroids and hormonal preparations, cement clinkers, medical/surgical accessories, pre-fabricated concrete blocks and refined palm oil have been added while 124 items such as biaxially oriented polypropylene (BOPP) films, calculators, colour TV picture tubes, gutka have been deleted. 

3. The new series will include data on electricity generation from renewable sources too. 

4. For capital goods, the data in the new series will now be captured in terms of ‘work in progress‘ to better represent the growth of capital goods and to avoid reporting of production figures in bulk after the completion of production.

5. The use­based classification has been re­framed by replacing 'basic goods' with 'primary goods' and introducing a new 'infrastructure/construction goods' category.

6. There has been an increase in number of factories in panel for reporting data. The closed factories have been removed.

Now come the actual numbers based on the new parameters.  Industrial output growth has slipped to 2.7 per cent in March. based on the revised base year of 2011-­12.  The IIP growth was 5.5 per cent in March 2016.

For 2016-­17, factory output grew by 5 per cent as against 3.4 per cent a year­ ago period. On the other hand, IIP growth based on the old series (with 2004-­05 base year) was 2.5 per cent in March compared to 0.3 per cent a year ago. Similarly the figure for 2016-­17 was 0.7 per cent as compared to 2.4 per cent in the previous fiscal.

It is important to note that the coverage of the new series of IIP is limited to the organised sector only.  The informal sector which evidently took the brunt of the demonetisation impact, is not covered in the IIP calculations – for the obvious reason that it is beyond the pale of accurate or even semi-accurate estimations. 

At a broad level, the new series has a total of 809 items in the manufacturing sector. In the item basket, 149 new products like steroids and hormonal preparations, cement clinkers, medical or surgical accessories, prefabricated concrete blocks and refined palm oil have been added.

What does all this signify.  Nobody really has figured out yet.  A typical reaction of the corporate sector runs something like this -  “We welcome this change.  It is highly desirable to have a more representative and contemporary assessment of industrial growth ......  However, even though under the new base year growth in the manufacturing sector shown to have improved,  the ground reality is that investment, particularly private investments, remain sluggish.   This is a cause for alarm, and it is evident from the very disappointing growth of the capital goods sector”.

So, is it for the good or not?  The experts are not ready to hazard a guess.  Perhaps the vegetable vendor, housewife and the schoolboy might be able to say.

Frontier
May 15, 2017


Raman Swamy may be contacted at raman.swamy@gmail.com

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