Policymaking in India, the old saw goes, is a bit like driving a car with a dirty windshield and a broken rear-view mirror. Not only does the current set of data not tell you what is going on, even data for the past gets revised with such a lag policymakers are caught completely off guard—FY11 GDP growth numbers, for instance, began with an 8.6% estimate, got revised down to 8.5% and finally ended up with a 9.3% number, and that is what made the Reserve Bank of India’s monetary policy for that year look remarkably loose in retrospect.
Since much of the hike in growth projections for FY11 emanated from the final tabulation of manufacturing growth from Annual Survey of Industry (ASI) data instead of the Index of Industrial Production (IIP), it is just as well that the Saumitra Chaudhuri panel is close to finalising its new IIP index. The reason why ASI data is so different from IIP is that it offers complete coverage, but the IIP scores in being more timely and, therefore, is of more use for policymakers. Apart from changing the base to 2009-10 in place of the current 2004-05, the new IIP is believed to be more representative in terms of the products it captures. There are two problems, however, that need addressing. First, the current IIP, for instance, largely leaves out unorganised sector units which include small exporters that typically do well in periods of rising global growth—which is why current manufacturing GDP will likely be revised upwards. Two, and more important, since the last IIP was finalised in 2011, such frequent revisions also add to the policy confusion. If the new IIP gets it right, however, it may still be worth it.