Reading economic data right has perhaps never been so important in recent memory as it is now. Now is when policymakers have to decide whether recovery has taken hold or if it has, whether it still needs nurturing or whether it is already strong enough to start thinking of precautionary actions. The index of industrial production data for August shows 10.21% year-on-year growth. This is the first double-digit industrial growth rate in months and, therefore, many will take this as firm proof that industry is beyond the recovery stage. But is it? A better way to look the data, indeed any economic data over time, is to base conclusions on point-to-point changes in seasonally-adjusted data. This shows a somewhat different picture. Yes, industrial growth is picking up here, too. But this data shows that the growth is less robust. This conclusion seems a considerably better fit to anecdotal evidence of entrepreneurs being less than charged up with animal spirit. It also fits better with less-than-impressive credit growth. It is a wonder why government statisticians don?t accept the superiority of point-to-point, seasonally-adjusted calculations?most respectable government statistical institutions around the world don?t favour year-on-year calculations. Changing over to a new system is not rocket science. Like many things in government, the reluctance is hard to understand.
Hopefully, key policymakers, who can easily access better interpretation of industry (and inflation) data, will be nuanced in their response. Some things are clear. Even thoughts of an interest rate hike should be discouraged. The truer picture of industry growth shows that if businesses face a higher rate now, recovery may receive a body blow. Also, remember that unlike the last time RBI raised rates, industry is coming out of a difficult situation this time and untimely monetary policy contraction can have especially horrendous consequences. Indeed, it seems a soft monetary policy must continue well into the near future. This must be the guiding principle of policy and it would be nice to hear both North Block and RBI say it. Even if food price inflation?again, look at the right kind of data first?is given the honour of being a big problem, the responses all lie in the realm of intelligent supply-side measures, beginning with quick import decisions. Exporters complaining about a rising rupee should not be given much hearing at all, at least not in the form of RBI intervention. Fighting to keep the rupee low will create pressure points for monetary policy that are simply not required. Ideally, RBI should effect another rate cut and hold on to that in the near future and let the rupee find its level against the dollar that?s under depreciation pressure now?that would be the best prescription for industry.
