With the integration of financial markets globally and the world economy experiencing several setbacks in the 1990s an urgent need was felt for introducing a standardised information and dissemination system to minimise the possibility of market participants acting on misinformation or misinterpretation of information. As the IMF rightly pointed out, one of the major reasons behind these crises was the lack of adequate, timely and reliable information in a standardised form. Such information deficiencies made it difficult to anticipate and respond to crises, while lack of standardisation either obscured financial weaknesses and imbalances in countries or led to misinterpretation by the market agents.
IMFs Special Data Dissemination Standard (SDDS) was set up in 1996 to guide countries that have, or that might seek, access to international capital markets in the dissemination of economic and financial data to the public. Under the SDDS, the Reserve Bank of India adhered to the responsibility of disseminating information on analytical accounts of the banking sector, analytical accounts of the central bank, share price index, balance of payments, international reserves and exchange rates.
The importance of accurate, transparent, and timely information dissemination in an accessible manner thus emerged not just as the need of the hour, but became the deciding factor for foreign investors considering investment options and also important for ensuring the healthy functioning of the domestic system. As Daljit Kohli, head of research at Emkay Global Financial Services observes, It increased the accountability as the taxpayers knew where their money was being spent. For example, in 1997-98, questions were raised on the relevance of the Planning Commission itself but now that the accountability has increased and we notice that it is playing a much more important role and functioning in a healthier manner. Kohli reasons, The credibility of data assimilation has also become more reliable now than a decade earlier because of the accessing and assessing data options.
But in spite of the existing information disseminating mechanics available, its usage has been limited. Sen adds, There is absolutely no user feedback which is essential for information flow and better understanding between the supplier and the user. It cannot just be a fall back mechanism as it has been till now. Prior to the crises people would not bother to look beyond the GDP or a sporadic check of the inflation and employment data.
However, questions about the accuracy of data that is available to us remain. As Dr Rajiv Kumar, director & chief executive, ICRIER, affirms, There are many a loopholes with respect to data collection, surveys and samples. For example our foreign trade data from the ministry of commerce does not reconcile with data from the RBI. It goes without saying that the entire statistical system is under funded. The data on small and medium enterprise is sketchy and so is the employment data. Needless to say that data forms the basis of policy making and hence its accuracy and reliability holds the key for the nation building process.
And Kohli also has his share of reservations about the credibility of the information released in public sphere. Just because the data is coming trough a sovereign source, does not always mean that it is the final word. There remain gaps in data assimilation and generation. And at times it can also be manipulated to a certain degree to fill in the required gaps, with its share of misreporting of financial progress, mostly with inflated cost estimates, irregular clubbing of work heads. How the data is used, interpreted and presented in most cases can act like a double edged sword, he cautions.
In the US and UK, because of the technological advantages there is obviously a greater reliability factor with respect to the data, but we have long way to go. However, Saumitra Chaudhuri, Member of the Economic Advisory Council to the Prime Minister affirms, We are not as badly placed. Amongst the emerging economies we are right there. And sure we are on track, as we have traversed from the times when an annual report of a company was also not available, to times when people are demanding greater accountability and influencing decision making like never before.