Jeez, I wonder how many other doozies there are in the IIP and other indices?
I've always wondered why the industrial growth numbers seemed way off from the GDP growth....even under UPA 2 rule.
How flawed is it that they based the number on just 4 factories from the 2004-05 base for so long? Thankfully 18 factories data should help with 2011-12 base..and hopefully they will revise the earlier data already published....and improve the sampling rate for the next base year revision.
@PARIKRAMA @anant_s @ranjeet @Dungeness et. al
http://economictimes.indiatimes.com...-down-growth-numbers/articleshow/53731768.cms
With minuscule IIP weightage, rubber cables pull down growth numbers
NEW DELHI: An item with a mere 0.12 weightage on the Index of Industrial Production (IIP) has been playing havoc with factory data for years, distorting the real picture every month. This is the curious case of insulated rubber cables, used
in a number of industries, mostly for electricity
distribution.
The
Reserve Bank of India discovered the gremlin in the works in its latest
monetary policy review. "The uneven performance of industrial output reflects the lumpy and order-driven contraction of insulated rubber cable, a component of capital goods. Excluding this item, industrial production rose at 3% in the current financial year. In fact, capital goods production excluding insulated rubber cables expanded by 8%," the central bank said.
Headline numbers show industrial production was up 2.4% in FY16 while capital goods output contracted 2.9% in the year, very different from the growth computed by RBI when these cables are excluded. In June this year, sector contribution to growth is -2.74%. This means without this item, IIP growth would have been 4.8% in June. Officials in the statistics office, which compiles the index, said the item has inherent
volatility and is demand driven, which unduly influences the index.
'Cable, rubber insulated' accounts for just 1.4% of capital goods component of IIP but from a 72% growth in August 2015 to 84% de cline in June this year, its behaviour has been erratic. It has been one of the biggest negative contributors to the index for the past seven months.
"In line with trends since November 2015, deep negative growth in rubber cable industry in June once again distorted capital goods and IIP growth. Excluding this industry, IIP growth would have been higher," said Saugata Bhattacharya, chief economist at
Axis BankBSE -1.27 %.
There are only four factories from which data is collected, based on the 2004-05 base on which the existing IIP series is made.
"This number is very less because we have to take data from the same units as in the base year," said an official, adding that the anomaly will be corrected in the upcoming IIP series with 2011-12 as base. Data would be collected from 18 factories and the item's weightage "significantly reduced." There are large orders in cable-laying, running into thousands of kms. This takes time to complete, with despatch lag reflecting in IIP.
"There are a limited number of firms producing this cable and orders are generally lumpy. There may be no production in many months because orders are being completed but once they are dispatched, it gets counted in IIP," said Devendra Pant, chief economist,
India Ratings & Research. Mohinder Gupta, president of All
India RubberBSE 0.00 %Industries Association, acknowledged, " Its production varies from factory to factory, depending on the demand. Hence, it is volatile in nature."
