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Data revisions can mislead policymaking: RBI
Published on 5 Jul. 2011 11:11 PM IST
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Reserve Bank of India (RBI) chief on Tuesday voiced concern about sharp revisions in macroeconomic data, including growth and inflation figures, which can disrupt calculations when setting policy.
RBI has raised interest rates 10 times since March 2010 to control inflation that has consistently outrun its forecasts. India’s most widely watched monthly inflation yardstick, the Wholesale Price Index (WPI), has been revised upward, sometimes sharply, in recent months. Many economists expect an upward revision of 30 to 40 basis points to the provisional 9.06 percent figure for May.
“Each time when we have to make an assessment of inflation situation, we are left to double guess how the provisional numbers may be revised upwards,” RBI Governor Duvvuri Subbarao said in a speech. The Index of Industrial Production (IIP) is also prone to sharp revisions.
“When we were making policy the IIP number available to us in February 2010 was 6.8 percent, whereas the economy was actually growing much faster,” he said.
“Provisional numbers which are off mark by significant margin can mislead policy calculation,” he said.
Subbarao added that such revisions were also factors behind the central bank making inflation projections that proved to be below the actual number in the last fiscal year.
“Last year RBI’s inflation projections were systematically below the actual outcome,” Subbarao said. Factors that led to the miscalculation included higher-than-expected gains in oil and other global commodity prices and a lower than expected decline in food prices despite a normal monsoon, he said. He also cited “erroneous signals from the then-available IIP data which suggested moderation in growth and demand,” as well as “larger than usual upward revision to the past inflation data.”
The RBI had initially projected inflation to be at 5.5 percent by end of March 2011 but subsequently revised it upwards to 7 percent and then later to 8 percent.
Ultimately, March-end inflation was revised upwards in June to 9.68 percent from 8.98 percent in April. Generally, private inflation forecasts were much closer to what was ultimately reported for the last fiscal year.

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