RBI handicapped by unreliable data, says Subbarao

The biggest challenge for the RBI is not inflation, but poor quality data on inflation, lamented governor Subbarao. He was at speaking on the occasion of the fifth statistics day, commemorating the birth anniversary of Prof. Mahalanobis.

“We make policies in real time, and if the provisional data that these are based on are inaccurate, the resultant policies can turn out to be sub-optimal choices,” he said.

Also read: Data revisions can mislead policymaking

Gopika Gopakumar of CNBC-TV18 reports that the governor made it clear that the RBI is not to be blamed for wrong policy decisions, but the data is. “He said that the poor quality of IIP data and the frequent revision of inflation and GDP numbers misled the regulator to make wrong projections,” she reports.

“For the year 2009-10, for example, the advance estimate of GDP growth rate at market prices from the expenditure side that came out in February 2010, was 6.8%,” the governor said during his speech. “That was changed to 7.7% in the revised estimate in May 2010 and further to 9.1% in the quick estimate in February 2011,” he pointed out. Therefore, policy that per force had to use information on advance estimate of GDP was fraught with the risk of underestimating the growth momentum, he reasoned.

Subbarao also bemoaned the reliability of basic data which is used in policy calculation, says Gopika. He said the volatility in IIP data is analytically bewildering! “During the period when the global financial crisis was at its peak - December 2008 to June 2009 – IIP growth was positive according to the then available IIP series. This was contrary to our assessment of the underlying trend of some deceleration on account of the crisis. The new IIP series, revised with 2004/05 as the base, now shows that IIP growth was, in fact, negative during that period vindicating our intuition,” the governor said.

Gopika says that his lecture stressed on the need for reliable indicators to measure potential output of the economy. “He also said there is a need to relook at the potential economic growth rate, given the persistent high inflation,” reports Gopika.

Source : 

http://www.moneycontrol.com/news/cnbc-tv18-comments/rbi-handicapped-by-unreliable-data-says-subbarao_562910.html
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