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India's Statistics?
An Exploratory Note
R Nagaraj
There is a growing perception of a steady deterioration of the quality of India's industrial statistics. Is
this perception justified? To find out, this study examines the quality of the Index of Industrial Production,
and some aspects of the Annual Survey of Industries, and the National Accounts Statistics. The study also
examines if (a) the popularly used financial indicators really reflect the underlying investment trends, and
(b) the expected association between electricity consumption and industrial output holds. Though exploratory,
the findings reported seem to support the growing perception.
ACCURATE and up to date industrial I;'rmation estimates, with over one-year index has been revised five times since
statistics are essential for policy, be it lag, separately for the registered and un- 1950. roughlyonce a decade.
public or corporate,in an era of economic registered manufacturing. Disaggregated However, the other problemremains.
'planning' or'reforms'. There is a growing value added estimates for two-digit The inadequateand poor qualityof the
perception that the quality of India's industry groups are available with over primary production data used for
industrial statistics has deteriorated over two-year time lag. The NAS is the only estimatingthe index is perhapsfar more
the years. This exploratory note seeks to source of estimates for the unregistered significant. Unfortunately,the revision
find out if such a perception has any basis, manufacturing value added and invest- does little to correct it. Reportedly,18
with respect to some of the widely used ment. The ASI Summary Results of the official agenciessupplythe primarydata
industrial statistics. Factory Sector that provide the dis- for estimating the index, though most
Section I. examines the quality of the aggragateddata - at three-digit level and importantof them all is the Department
Index of IndustrialProduction (IIP)- the by states - are available with a lag of at of Industrial PolicyandPromotion(earlier
most widely used leading output indicator. least three years.1 DGTD) that providesdataon the manu-
Development finance institutions' Manufacturing sector constitutes over facturingsector.
disbursements of long-term credit, and four-fifths of the IIP's weightage. the Development Commissioner, Small
mobilisation of capital in the primarystock remaining being mining and electricity Scale Industries(DCSSI) is reportedly
marketarewidely used to forecastcorporate sectors. The index is available for 18 two- responsibleforsupplyingdatafor 18items
investment activity. How useful these are digit industry groups; and for five use- of thissector.However,thisagencyseems
to predictdomestic fixed capital formation based, three input-based and two sector- to be unableto do so. To quotethe press
is examined in Section II. In a modern based categories [RBI 1986]. Source of release issued to notify the new IP, "In
industrial economy, there is expected to the primarydata for estimating the index theabsenceof regularmonthlyproduction
be a close technical relationship between is voluntary reporting of monthly output datafromtheunorganisedsector,theitem
electricity consumption and manu- by firms with equipment investment of basket has been identified on the basis of
facturingoutput. Does such a relationship over Rs 20 lakh in 1980. However, since data from the registered sector only.
hold in the Indian context, we find out in in some industriessmall-scale sectordomi- Further,the sourceagency(DCSSI)could
Section III. With the rapid growth of the nates, they are also reportedlyincluded in not line up the productiondata for the
unorganised manufacturing, there is a the index. itemsof the revisedseries"(p 5, emphasis
widespread belief that the value added in Last year, after a gap of over a decade, added).3Evidently, the index does not
this sector is significantly underestimated. a revised IIP was introduced with capturethe unregisteredmanufacturing at
Section IV provides some indication of 1993-94 as the base year. Reportedly, all - contraryto the official claim andits
this tendency. Section V discusses some tle number of items included in the endorsement by many commentators
evidence of growing problems with the 1993-94 series is substantially larger, and [Pradhanand Saluja 1998b].
Annual Survey of Industries (ASI). il is intended to include even more items On the face of it, there are reasonsto
Section VI concludes by summarising the from the small sector as and when data believethatthequalityof theprimarydata
main findings of the study. become available.2Does the revised index has deterioratedover the decades. In a
The questions asked are, how reliable really representan improvement'?In other regime of industrial licensing, firms
are these leading (and lagging) indicators words, is it better at reflecting the under- conceivablyhadan interestin voluntarily
of manufacturingoutput and investment? lying production trends? We contend that reportingtheir output; and the official
Do they accuratelyandconsistently reflect il probablyis not, forthe following reasons. agencyperhapshad some administrative
the underlying trends, given that the Periodic revision of any index numbers powers to ensure compliance. In other
production and the organisational struc- is desirable to account for the changes in words,since the datagenerationprocess
turesarebecoming increasingly complex? the composition of the basket of goods wasa by-productof theregulatoryregime,
that they represent. During the 13 years theindexwasperhapsmorerepresentative
since the last revision, the industrialoutput of the underlyingproductiontrends.
Index of Industrial Production has grown annually at over 8 per cent, and However, since the mid-1980s - and
Index of industrial production (IIP)- with considerable changes in its com- especially since 1991 - with a steady
available monthly, with the least time lag position. Therefore, the IIP's revision is decline and deregulationof output and
- is one of the most widely used leading welcome, to the extent the new index investment controls, firms have little
indicators of industrial production. better captures the changes in the output incentive to report their output to the
National Accounts Statistics (NAS) composition. In fact, this has been a routine official agency.4Moreover.the officials
contains annual value added and capital matter with the official agencies as the have little leverageto enforceanyrulein
Economic and Political Weekly, Vol. 34, No. 6 (Feb. 6-12, 1999), pp. 350-355
this regard. So, it is likely that non- turn perverse for sub-periods since lead indicators of private corporateinvest-
reportinghas gone up, and the index could 1980-81. ment. This is based on Samuel Paul and
have become increasingly unrepre- (2) At two-digit industry groups, during Rangarajan's (1973) short-termforecasting
sentative. boththe sub-periods,thereis no statistically model that has been regularlyupdated for
To test this proposition, we compute valid association between the growth rates over two decades now.7 Does the flow of
simple correlation coefficient of annual of the IIP and (the registered and total) long-term credit really predictfixed capital
growth ratesof the IIP and the NAS series. manufacturing value added. formation in the private corporate sector?
This assumes that the NAS series - that From these, one can reasonably infer To test the proposition, we computed
is, in turn, based on the ASI data (except that the IIP never accurately predicted simple correlation coefficient between the
for the most recent two years) - is a more manufacturinggrowth rates at a disaggre- annualgrowth ratesof fixed capital forma-
accurate representation of the underlying gated level. Though for the manufacturing tion in privatecorporate sector (NAS data)
production trends. First, the correlation sector as a whole the IIP could have been anddisbursementof long-termcredit(both
coefficients are estimated between the well used as a lead indicator for the 1970s, in nominal terms) for the period 1965-66
growth ratesof the IIPand (i) the registered it cannot be used to predict manufacturing to 1995-96. Since fixed capital formation
and (ii) the total manufacturing.5These value added in a period of deregulation is likely to spill over into more than one
are done for two sets of overlapping time (in the 1980s and beyond). year,we have also estimated the correlation
series data: (i) 1970-71 to 1984-85, and Clearly, the IIP has deterioratedover the coefficient with one year lag. Table 4
(ii) 1980-81 to 1995-96, corresponding to last two decades. This is mainly because shows that for none of the time-periods
IIP with base year 1970-71, and IIP with the primarydatathatis used for computing is therea statisticallysignificant correlation
base year 1980-81, respectively. the index has become poorerin quality and
Table 1 shows that for Period-I, the HP probably scarcer in quantity. The recent TABLE 2: COMPARISONOF THE ASI AND IIP
GROWTH RATES OVER THREE SUB-PERIODS
growth rate is statistically significantly official press note in fact admits it: "For
correlated with both the registered and the registered sector... the quality of Average Total Registered IIP
total manufacturing growth rates. production data supplied by the major of Years Manufacturing Manufacturing
However, for Period-II, the correlation source agencies suffer from substantial 1981-85 6.2 7.7 5.7
coefficient between the IIP and the non-response on the partof manufacturing 1986-91 7.5 7.5 8.9
registeredmanufacturingis not statistically unitsandconsequentialestimationresorted 1992-96 6.6 7.1 6.4
significant. Further,if we restrictthe time to by the source agencies.... The industrial 1981-96 8.8 7.5 7.2
series in Period-II up to 1990-91, then growth based on the revised IIP do not Source. NAS, various issues: Econom,ic and
there is no statistically significant therefore, seeni to reflect the perceived Political Weekly, Vol 29. No 29, July
correlation between the IIP and either ground realities" (p 5, emphasis added). 19-25, 1997.
registered or total manufacturing. If we Therefore, no amount of updating and
take shorter time-periods, then the TABLE 3 (a): SIMPLE CORRELATIONCOEFFICIENTS
refining the IIP's weighting diagram can BETWEENTHE ANNUAL GROWTH RATES OF THE IIP
associationbecomes perverse,as illustrated compensate for lack of reliable primary AND THE NAS VALUE ADDED SERIES. AT 15
in Table 2, wherein Period-II is divided data that are used for computing it. 2-DIGIT INDUSTRYGROUPS
into three sub-periods. Therefore, there is Evidently, the official agency is well aware
some basis to believe that increasingly the of the problem. To quote the press release AverageGrowth Registered Total
IIP has become unrepresentative of the once again, "Inorderto improvethe quality Rate for Years Manufacturing Manufacturing
underlying output trends. as reflected in of production data, the Department of 1971-72/1974-75 0.168 0.480*
the ASI data. Statistics is having regularinteractionwith 1975-76/1979-80 0.349 0.433*
How does the association between the the source agencies to improve theirsystem 1980-81/1984-85 -0.437 -0.230
0.100
IIP and the ASI look at the disaggregated of data collection and estimation pro- 1970-71/1984-85 0.176
level'?To find out. we do a similarexercise, cedures. It is expected that the quality of Source: Same as in Table 2.
by estimating correlation coefficients of data will improve in the near future".How
the growth rates at two-digit industry will 'regular interactions' ensure better TABLE 3 (b): SIMPLE CORRELATIONCOEFFICIENTS
BETWEENTHE ANNUAL GROWTH RATES OF THE IIP
groups. The answer is no, as most of the data collection? They probably will not,
AND THE NAS VALUE ADDED SERIES, FOR 15
correlationcoefficients are not statistically unless the firms face a credible incentive 2-DIGIT INDUSTRYGROUPS
significant and, there is no systematic (and a threat) to supply the data.6
pattern to those that are statistically AverageGrowth Registered Total
II Rate for Years Manufacturing Manufacturing
significant (Tables 3 (a) and (b)). There-
fore. it is reasonable to infer that neither Financial Data and Trends
1980-81/1984-85 0.128 -) 0.170*
in the period of licensing (1971-85), nor in Fixed Investment 1985-86/1990-91 (-)0.223 0.694*
in the regime of deregulation (1981-95) 1991-92/1994-95 0.450* (-)0.278
Development finance institutions' 1980-81/1994-95 0.430
was the IIP an accurate predictor of value (-)0.241
(DFIs) sanctions and disbursements of
added at two-digit industry level. long-term credit have been widely used as Source: Same as in Table 2.
To summarise the findings of this
TABLE 1: SIMPLE CORRELATIONCOEFFICIENTSBETWEENANNUAL GROWTH RATES OF IIP AND NAS
section: MANUFACTURINGVALUE ADDED.
(1) For the period 1971-72 to 1985-86
(Period-I), growth rates of IIP for manu- CorrelationCoefficient between Period I Period II Period II
IIPand NAS (1970-71/1984-85) (1981-82/1995-96) (1981-82/1990-91)
facturing is highly correlated with those
(1) (2) (3)
of (the registered and total) manufac-
turingvalue added.However, this associa- Registered manufacturing 0.741* 0.440 (-) 0.403
tion turned statistically insignificant Total manufacturing 0.701* 0.706* (-) 0.007
during 1980-81 to 1995-96 (Period-II). ? Statistically significant at 5 per cent confidence interval, in a two-tailed test.
The associations weaken further and Sour-ce:NAS and Economic Survey, various issues.
o . - .F -, o -. . ,--0 O .
Cj 00 00 00 00 00 00 00 00 00 ON ON O O
0' 0s 0t O O ON 0 0s
0o O 0oN 0 O 0s
Year
1977-78 1983 1987-88 1993-94
No of Factories
Year
which accounts for the growing under- sector and into the unorganised sector.
5] Employment * Value added
estimation of value added in this sector. (i) and (ii) are believed to have increased
FIGURE 2: SHARE )F FACTORYSECTOR IN CENSUS
V significantly [Nagaraj 1994].
MANUFA(TURING EMPLOYMENT To illustrate the extent of non-recording
Annual Survey of Industries of factories and changes in them, we
50
48 Inprinciple,all factoriesregisteredunder compared the number of factories in ASI
~ 46 the Factories Act (under section 2m(i) and in manufacturing with number of
(ii)) are included in the Annual Survey of establishments in manufacturing emplo-
44 Industries (ASI). The universe of the ASI ying 10 or more workers in economic
42 is the live register of factories maintained censuses of 1980 and 1990.13 In 1980,
40 by the Chief Inspectorate of Factories in number of factories in ASI formed less
198( 1990 each state. Therefore, the ASI's coverage than one-half (48 per cent) of manu-
Year can only be as good as the factories' list. facturing establishments in the census.
First, labour productivity could have UJnderthe Collection of Statistics Act (and Even if a variety of manufacturingestabli-
significantly gone up with diffusion of related laws), all registered factories are shments are exempt from the Factories
electricity as motive power that has expected to file an annual return. Every Act, the fact that over 50 per cent of them
occurred during the last two decades. year, the CSO conducts a census of all have not registered under the act suggests
Second, unregistered manufacturing has factories employing 50 workers and above a gross extent of under-reporting of
witnessed a steady growth in fixed capital (100 workers and above without using factories (Figure 2). This is consistent with
formation,thus indicating a steady growth power). Sample surveys - covering one- evidence from many micro level studies.
in potential output. Finally, since un- half of all registered factories employing More significantly, the proportion of
registeredmanufacturing,unlike the regis- between 10 and 50 workers (20 and 100 factories registered under the Factories
tered sector, operates under competitive workers without using power) - are con- Act fell by 5 per cent, to 43 per cent in
conditions (due to low entry barriers), it ducted every year.1 1990 suggesting a rapid growth of under-
is reasonable to argue that investment and How good are these estimates? Re- reporting of factories.14
employment growth in this sector would viewing the methodology, Pradhan and This finding can be corroborated with
have occurredmainly under private profit- Saluja (1998a) said, "For the organised other evidence as well. During 1980-90,
ability considerations. In other words, on manufacturing industries fairly reliable when registered manufacturing value
the face of it, growth in wage employment data are available annually, but with a added grew annually at over 8 per cent,
and fixed capital formation in this sector considerable time-lag"(p 1270). This view with a steady delicensing of investment
is unlikely to have occurred unless the needs to be re-examinedfor three reasons: and output controls resulting in consi-
increase in labour productivity more than (i) incomplete coverage of factories, derable new entry into manufacturing
compensatedthe cost of capital and labour. (ii) under-reportingof workersin factories industries, yearly trend growth in number
Therefore, we have a reasonable basis to covered, especially in small factories, and of factories was as low as 0.9 per cent.
argue that parametersof value added per (iii) under-reportingofvalue added.12With Under-reporting of value added is
worker usedd for unregistered manu- the size structure moving towards the another important problem that has been
facturing are likely to be underestimated, smaller sized factories within the factory repeatedly pointed out by careful studies.
Raj (1986) suggested serious underestima-
TABLE 7: GROWTH IN STEEL INDUSTRY tion of value added in registered manufac-
(Average annual growth rate)
turing due to growing tax evasion.15 More
Years Finished Steel Hot Metal Real Gross Value Real Gross recently, T N Srinivasan (1994) reiterated
(in Physical (in Physical of Production Value Added the same point: "... given the incentive for
Units) Units) (ASI Series) evasion of excise and other taxes, there
(i) 1980-81/1994-95 5.7 5.1 are reasons to believe that value added
(ii) 1985-86/1994-95 5.7 5.6 data may be biased and the extent of the
(iii) 1981-82/1994-95 5.4 4.1 5.4 bias could be varying over time" (p 9).
(iv) 1985-86/1994-95 6.7 5.9 The above mentioned problems of
Note: Gross value of output and gross value added include NIC 330, 331, 332. increasingly poor coverage and probable
Source: ASI Sumnmlaryl
Results and SAIL YearBook,various issues. under-reporting of value added can be
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