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Why Policymaking is Such a Nightmare in India
Fri, 2 Jun Pre-Open

Majority of problems with policymaking in India stem from the lack of data. To be able to accurately calculate, as well as interpret, statistics helps in understanding the health of the economy and deciding on the right policies.

In many ways, the Indian state is perhaps much more data-rich than it has ever been before. Yet, in many other ways, its statistical systems are failing to fulfil the needs of 21st century policymaking, with even basic data on industrial output, and gross domestic product (GDP), being routinely questioned by policymakers and analysts.

The once-famed statistical bodies, the Central Statistical Organization (CSO) and the National Sample Survey Office (NSSO), seem to struggle to produce timely and credible data on crucial aspects of the Indian economy and society.

For instance, until last month, GDP and IIP (Index of Industrial Production) data seemed like strange companions. If national accounts showed India growing at a world-beating 7%, IIP a leading economic indicator showed shades of a slump.

This divergence raised concerns: Could the data be trusted? Some even hinted the government was dressing up headline numbers, as supporting metrics like IIP, WPI, and merchandise exports were visibly going downhill. But in hindsight, the difference in the base year was partly responsible for the variance.

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Moreover, India's GDP numbers have been receiving flak since a new calculation was introduced in January 2015. Overnight, India's GDP growth accelerated from 4.7% to 6.9%. It didn't make sense to many. Even Vivek Kaul pointed out in of the editions of Vivek Kaul's Inner Circle:

  • "the GDP growth number is a theoretical construct. Since January 2015, when India adopted a new method of calculating the GDP, the GDP growth number has not been in line with the high frequency economic indicators that come out every month or once every three months. If the GDP is growing then so should these economic indicators, which has not always been the case. This has led to doubts about the reliability of the Indian GDP numbers."

The need to clear the ambiguity stems from the diverging trends marked by various indicators. For instance, the ground reality in Asia's third-largest economy didn't exactly mirror the spectacular GDP growth in the last year.

The situation got so bad that even the Chinese - widely acknowledged as masterful economic data manipulators accused India of cooking up its GDP numbers.

However, the present National Statistical Commission is examining ways to revamp India's statistical system. Starting with CPI to GDP, to IIP and WPI now, India's statistical house has been set in order. The GDP data released recently factored in new series of IIP and WPI with change of base year to 2011-12.

But the government is aware the job is half-done and has directed efforts to introduce a producer's price index to determine ex-factory price, jobs data, the key metric followed globally and an MSME (Micro, Small and Medium Enterprise) index to complete the data pool.

So, can we expect our existing statistical systems to rise to the challenge? We believe the statistical system needs a lot more resources, both in terms of money and manpower to show what the real picture is.

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