How Good Are Industrial

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

350 Economic and Political Weekly February6, 1999

Economic and Political Weekly, Vol. 34, No. 6 (Feb. 6-12, 1999), pp. 350-355
 this regard. So, it is likely that non-
reportinghas gone up, and the index could
have become increasingly unrepre-
sentative.
To test this proposition, we compute
simple correlation coefficient of annual
growth ratesof the IIP and the NAS series.
This assumes that the NAS series - that
is, in turn, based on the ASI data (except
for the most recent two years) - is a more
accurate representation of the underlying
production trends. First, the correlation
coefficients are estimated between the
growth ratesof the IIPand (i) the registered
and (ii) the total manufacturing.5These
are done for two sets of overlapping time
series data: (i) 1970-71 to 1984-85, and
(ii) 1980-81 to 1995-96, corresponding to
IIP with base year 1970-71, and IIP with
base year 1980-81, respectively.
Table 1 shows that for Period-I, the HP
growth rate is statistically significantly
correlated with both the registered and
total manufacturing growth rates.
However, for Period-II, the correlation
coefficient between the IIP and the
registeredmanufacturingis not statistically
significant. Further,if we restrictthe time
series in Period-II up to 1990-91, then
there is no statistically significant
correlation between the IIP and either
registered or total manufacturing. If we
take shorter time-periods, then the
associationbecomes perverse,as illustrated
in Table 2, wherein Period-II is divided
into three sub-periods. Therefore, there is
some basis to believe that increasingly the
IIP has become unrepresentative of the
underlying output trends. as reflected in
the ASI data.
How does the association between the
IIP and the ASI look at the disaggregated
level'?To find out. we do a similarexercise,
by estimating correlation coefficients of
the growth rates at two-digit industry
groups. The answer is no, as most of the
correlationcoefficients are not statistically
significant and, there is no systematic
pattern to those that are statistically
significant (Tables 3 (a) and (b)). There-
fore. it is reasonable to infer that neither
in the period of licensing (1971-85), nor
in the regime of deregulation (1981-95)
was the IIP an accurate predictor of value
added at two-digit industry level.
To summarise the findings of this
section:
(1) For the period 1971-72 to 1985-86
(Period-I), growth rates of IIP for manu-
facturing is highly correlated with those
of (the registered and total) manufac-
turingvalue added.However, this associa-
tion turned statistically insignificant
during 1980-81 to 1995-96 (Period-II).
The associations weaken further and
Economic and Political Weekly February6, 1999
turn perverse for sub-periods since lead indicators of private corporateinvest-
1980-81. ment. This is based on Samuel Paul and
(2) At two-digit industry groups, during Rangarajan's (1973) short-termforecasting
boththe sub-periods,thereis no statistically model that has been regularlyupdated for
valid association between the growth rates over two decades now.7 Does the flow of
of the IIP and (the registered and total) long-term credit really predictfixed capital
manufacturing value added. formation in the private corporate sector?
From these, one can reasonably infer To test the proposition, we computed
that the IIP never accurately predicted simple correlation coefficient between the
manufacturinggrowth rates at a disaggre- annualgrowth ratesof fixed capital forma-
gated level. Though for the manufacturing tion in privatecorporate sector (NAS data)
sector as a whole the IIP could have been anddisbursementof long-termcredit(both
well used as a lead indicator for the 1970s, in nominal terms) for the period 1965-66
it cannot be used to predict manufacturing to 1995-96. Since fixed capital formation
value added in a period of deregulation is likely to spill over into more than one
(in the 1980s and beyond). year,we have also estimated the correlation
Clearly, the IIP has deterioratedover the coefficient with one year lag. Table 4
last two decades. This is mainly because shows that for none of the time-periods
the primarydatathatis used for computing is therea statisticallysignificant correlation
the index has become poorerin quality and
probably scarcer in quantity. The recent TABLE 2: COMPARISONOF THE ASI AND IIP
GROWTH RATES OVER THREE SUB-PERIODS
official press note in fact admits it: "For
the registered sector... the quality of Average Total Registered IIP
production data supplied by the major of Years Manufacturing Manufacturing
source agencies suffer from substantial 1981-85 6.2 7.7 5.7
non-response on the partof manufacturing 1986-91 7.5 7.5 8.9
unitsandconsequentialestimationresorted 1992-96 6.6 7.1 6.4
to by the source agencies.... The industrial 1981-96 8.8 7.5 7.2
growth based on the revised IIP do not Source. NAS, various issues: Econom,ic and
therefore, seeni to reflect the perceived Political Weekly, Vol 29. No 29, July
ground realities" (p 5, emphasis added). 19-25, 1997.
Therefore, no amount of updating and
TABLE 3 (a): SIMPLE CORRELATIONCOEFFICIENTS
refining the IIP's weighting diagram can BETWEENTHE ANNUAL GROWTH RATES OF THE IIP
compensate for lack of reliable primary AND THE NAS VALUE ADDED SERIES. AT 15
data that are used for computing it. 2-DIGIT INDUSTRYGROUPS
Evidently, the official agency is well aware
of the problem. To quote the press release AverageGrowth Registered Total
once again, "Inorderto improvethe quality Rate for Years Manufacturing Manufacturing
of production data, the Department of 1971-72/1974-75 0.168 0.480*
Statistics is having regularinteractionwith 1975-76/1979-80 0.349 0.433*
the source agencies to improve theirsystem 1980-81/1984-85 -0.437 -0.230
0.100
of data collection and estimation pro- 1970-71/1984-85 0.176
cedures. It is expected that the quality of Source: Same as in Table 2.
data will improve in the near future".How
will 'regular interactions' ensure better TABLE 3 (b): SIMPLE CORRELATIONCOEFFICIENTS
BETWEENTHE ANNUAL GROWTH RATES OF THE IIP
data collection? They probably will not,
AND THE NAS VALUE ADDED SERIES, FOR 15
unless the firms face a credible incentive 2-DIGIT INDUSTRYGROUPS
(and a threat) to supply the data.6
AverageGrowth Registered Total
II Rate for Years Manufacturing Manufacturing
Financial Data and Trends
1980-81/1984-85 0.128 -) 0.170*
in Fixed Investment 1985-86/1990-91 (-)0.223 0.694*
1991-92/1994-95 0.450* (-)0.278
Development finance institutions' 1980-81/1994-95 0.430
(-)0.241
(DFIs) sanctions and disbursements of
long-term credit have been widely used as Source: Same as in Table 2.
TABLE 1: SIMPLE CORRELATIONCOEFFICIENTSBETWEENANNUAL GROWTH RATES OF IIP AND NAS
MANUFACTURINGVALUE ADDED.
CorrelationCoefficient between Period I Period II Period II
IIPand NAS (1970-71/1984-85) (1981-82/1995-96) (1981-82/1990-91)
(1) (2) (3)
Registered manufacturing 0.741* 0.440 (-) 0.403
Total manufacturing 0.701* 0.706* (-) 0.007
? Statistically significant at 5 per cent confidence interval, in a two-tailed test.
Sour-ce:NAS and Economic Survey, various issues.
351
between the DFIs disbursement and
corporate fixed investment. However,
duringthe periodof industriallicensing
(1995-80) the correlationis valid with
one-yearlag. But this ceases to be so in
the period of deregulation (1981-96),
suggestingthat while long-termlending
could have been used as a lead indicator
in a period of investmentlicensing, it
cannotbe used in the liberalisedregime.
The absenceof the associationin recent
yearsis widelybelievedto be dueto DFIs'
growingpracticeof 'evergreening':loans
disbursedto defaultersthatareoftenused
to repayold debts. As the data on dis-
bursementsnet of ever greeningare not
publiclyavailable,the widelyheld belief
cannotbe tested.
Similarly,in recentyears,capitalraised
by initial public offering in the primary
stockmarketis also widelyusedto predict
corporateinvestmenttrendsin the short
to mediumterm.This measuretoo has an
intuitiveappeal.Butis itempiricallyvalid?
Table5 showsthattheseresultsaresimilar
to the above findings:In the regime of
industriallicensing(1962-80),totalcapital
raised in the primarystock market is
positive and statistically significantly
correlated withcorporatefixedinvestment.
This is trueeven with one-yearlag. But
the relationshipceases to exist since the
1980-81.Therefore,inthepresentcontext,
theprimarystockmarketmobilisationhas
littlerelationtocorporatefixedinvestment.
III
Electricity Consumption and
Industrial Output
and the unregistered manufacturingvalue
added that are reported in the NAS.
Therefore,one maybelieve thatthe growth
ratesof unregisteredsector are reasonably
satisfactory, despite some widely known
output underestimation (of level of value
added) in this sector.8 However, careful
micro studies have repeatedlyhinted at the
growing manufacturing activity in un-
registered sector that escapes the official
estimation. While such a criticism has an
intuitive appeal, it has been difficult to
substantiate it in the aggregate. We now
provide some evidence that seems to lend
credence to the widely held suspicion.
Between 1977-78 and 1993-94, while the
unregisteredmanufacturingsector's share
in total manufacturing value added dec-
lined by 4 per cent, its share in total
manufacturingemployment has increased
by 5.1 percent (Figure 1).9These changes
can be reconciled only under the assum-
ption that the growth rate of value added
per worker (labour productivity) in un-
registeredmanufacturinghas been growing
slower than that in registered manu-
facturing.10
Since value added in unregisteredsector
is a product of (i) number of workers and
TABLE 4: SIMPLECORRELATIONCOEFFICIENTBETWEENNOMINAL ANNUAL GROWTH RATES OF DFIs'
DISBURSEMENTAND CORPORATEGFCF
Years No of
Observations
1965-66/1979-80 15
1980-81/1995-96 16
1965-66/1995-96 31
(ii) benchmark estimates of value added
per worker, the underestimation could be
because of either variable. A preliminary
scrutiny ruled out underestimation of
number of workers, as they seem to be
based on decennial census and the NSS
estimates. Since the estimates of value
added per worker are allegedly outdated,
this possibly accounts for the under-
estimation of value added.
This seems to be borneout by theexercise
reportedhere, examining the relativemove-
ments in the growth in value added per
worker, and fixed capital stock per worker
during 1981-91 in the registered and un-
registered manufacturing sectors. It was
found that for 100 units increase in fixed
capital per worker in registered manufac-
turing, value added per worker increased
by 156 units. However, in unregistered
manufacturing,the correspondingincrease
in value added per worker was only 88
units. Relatively slower growth of value
added per worker in unregistered
manufacturing seems to suggest under-
estimation of value added in this sector
due to usage of outdated parameters.
The parameters could be outdated (or
under-reported)for the following reasons.
With One-Year Lag
Correlation No of Correlation
Coefficient Observations Coefficient
0.0 14 0.662*
0.0 15 0.158
0.0 30 0.540*

Sincealmostall modernmanufacturing :'Statisticallysignificant at least I per cent level.

Source: RBI Currencyand Filnance,and NAS.
industriesuse electricityas motivepower,
and since there is a broad technical TABLE 5: SIMPLECORRELATIONBETWEENANNUAL GROWTH RATES OF NOMINAL CAPTIAL RAISED IN STOCK
MARKET AND GROSS FIXED CAPITAL FORMATIONIN PRIVATE CORPORATESECTOR
relationshipbetween electricityuse and
value added, growth in electricitycon- With One-Year Lag
sumption,in principle,can be used as a Years No of Correlation No of Correlation
proxy for industrialoutput growth. To Observations Coefficient Observations Coefficient
testthisproposition,we estimatedsimple 1961-62/1979-80 19 0.446* 18 0.424*
correlationcoefficients between annual 1980-81/1995-96 16 0.101 15 (-)0.215
growth rates of industrial output and 1961-62/1995-96 35 0.246 34 0.068
electricityconsumption(Table6). None **Significant at 5 per cent level, *** significant at 10 per cent level.
of thesecorrelationcoefficientsarestati- Source: Same as in Table 4.
stically significant, though all of them
havetheexpectedpositivesign. Since, in TABLE 6: CORRELATIONOF GROWTH RATES OF ELECTRICITYCONSUMPTIONAND INDUSTRIAl.OUTPUT

principle,thereis a technicalrelationship CorrelationCoefficient between Years No of Coefficient of

between the two variables, lack of Observations Correlation
correlationsuggests incorrectrecording IIP manufacturingand energy sales 1981-82/1993-94 13 0.426
(i)
of inputs and output. (ii) Real GDP in regd mfg and energy sales 1981-82/1993-94 13 0.276
(iii) Real GDP in total mfg and energy sales 1981-82/1993-94 13 0.284
IV Real GDP in red mfg and realvalue
(iv)
Underestimation of Unregistered of fuel used 1973-74/1993-94 20 0.243
Manufacturing Output
N'otes: In (i), (ii) and (iii) above, energy sales referto public utilities' sale of electricity to industry
Over a long period,thereis a positive in physical quantity. In (iv), it is value of fuel consumed by registered manufacturing
and statistically significant correlation industries as reportedin the ASI deflated by price index for fuel.
betweenthegrowthratesof the registered Source: NAS, ASI, and Public Electricity Supply: All India Statistics, various issues.

352 Economic and Political Weekly February6, 1999

 FIGURE 1: UNREGISTEREDMANUFACTURING
SECTOR'S SHARE IN TOTAL MANUFACTURING
EMPLOYMENTAND VALUE ADDED
90
,bo 90 ......................................................................................................
? 80
70
60
1977-78 1983 1987-88
Year
5] Employment
FIGURE 2: SHARE )F FACTORYSECTOR IN CENSUS
MANUFA(TURING EMPLOYMENT
50
48
~ 46
44
42
40
198(
Year
First, labour productivity could have
significantly gone up with diffusion of
electricity as motive power that has
occurred during the last two decades.
Second, unregistered manufacturing has
witnessed a steady growth in fixed capital
formation,thus indicating a steady growth
in potential output. Finally, since un-
registeredmanufacturing,unlike the regis-
tered sector, operates under competitive
conditions (due to low entry barriers), it
is reasonable to argue that investment and
employment growth in this sector would
have occurredmainly under private profit-
ability considerations. In other words, on
the face of it, growth in wage employment
and fixed capital formation in this sector
is unlikely to have occurred unless the
increase in labour productivity more than
compensatedthe cost of capital and labour.
Therefore, we have a reasonable basis to
argue that parametersof value added per
worker usedd for unregistered manu-
facturing are likely to be underestimated,
Years
(i) 1980-81/1994-95
(ii) 1985-86/1994-95
(iii) 1981-82/1994-95
(iv) 1985-86/1994-95
Note: Gross value of output and gross value added include NIC 330, 331, 332.
Source: ASI Sumnmlaryl
Results and SAIL YearBook,various issues.
Economic and Political Weekly
FIGURE
3: NO OFFACTORIES
4000 . .............................................................................................................................................
3500
3000
2500
2000
1500--
1000-
500
o . -
Cj 00
0' 0s
1993-94
which accounts for the growing under-
* Value added
estimation of value added in this sector.
V significantly [Nagaraj 1994].
Annual Survey of Industries
Inprinciple,all factoriesregisteredunder
the Factories Act (under section 2m(i) and
(ii)) are included in the Annual Survey of
Industries (ASI). The universe of the ASI
is the live register of factories maintained
by the Chief Inspectorate of Factories in
1990 each state. Therefore, the ASI's coverage
can only be as good as the factories' list.
UJnderthe Collection of Statistics Act (and
related laws), all registered factories are
expected to file an annual return. Every
year, the CSO conducts a census of all
factories employing 50 workers and above
(100 workers and above without using
power). Sample surveys - covering one-
half of all registered factories employing
between 10 and 50 workers (20 and 100
workers without using power) - are con-
ducted every year.1
How good are these estimates? Re-
viewing the methodology, Pradhan and
Saluja (1998a) said, "For the organised
manufacturing industries fairly reliable
data are available annually, but with a
considerable time-lag"(p 1270). This view
needs to be re-examinedfor three reasons:
(i) incomplete coverage of factories,
(ii) under-reportingof workersin factories
covered, especially in small factories, and
(iii) under-reportingofvalue added.12With
the size structure moving towards the
smaller sized factories within the factory
TABLE 7: GROWTH IN STEEL INDUSTRY
(Average annual growth rate)
Finished Steel Hot Metal Real Gross Value
(in Physical (in Physical of Production
Units) Units) (ASI Series)
5.7 5.1
5.7 5.6
5.4 4.1
6.7
February6, 1999
INSTEELINDUSTRY
(NIC 331)
.F -, o -. . ,--0 O .
00 00 00 00 00 00 00 00 ON ON O O
0t O O ON 0 0s
0o O 0oN 0 O 0s
Year
No of Factories
sector and into the unorganised sector.
(i) and (ii) are believed to have increased
To illustrate the extent of non-recording
of factories and changes in them, we
compared the number of factories in ASI
in manufacturing with number of
establishments in manufacturing emplo-
ying 10 or more workers in economic
censuses of 1980 and 1990.13 In 1980,
number of factories in ASI formed less
than one-half (48 per cent) of manu-
facturing establishments in the census.
Even if a variety of manufacturingestabli-
shments are exempt from the Factories
Act, the fact that over 50 per cent of them
have not registered under the act suggests
a gross extent of under-reporting of
factories (Figure 2). This is consistent with
evidence from many micro level studies.
More significantly, the proportion of
factories registered under the Factories
Act fell by 5 per cent, to 43 per cent in
1990 suggesting a rapid growth of under-
reporting of factories.14
This finding can be corroborated with
other evidence as well. During 1980-90,
when registered manufacturing value
added grew annually at over 8 per cent,
with a steady delicensing of investment
and output controls resulting in consi-
derable new entry into manufacturing
industries, yearly trend growth in number
of factories was as low as 0.9 per cent.
Under-reporting of value added is
another important problem that has been
repeatedly pointed out by careful studies.
Raj (1986) suggested serious underestima-
tion of value added in registered manufac-
turing due to growing tax evasion.15 More
Real Gross recently, T N Srinivasan (1994) reiterated
Value Added the same point: "... given the incentive for
evasion of excise and other taxes, there
are reasons to believe that value added
data may be biased and the extent of the
5.4 bias could be varying over time" (p 9).
5.9 The above mentioned problems of
increasingly poor coverage and probable
under-reporting of value added can be
353
 illustrated by the following example of
steel industry. As shown in Figure 3,
numberof factories in 3-digit industry33 1
('manufacture of semi-finished iron and
steel products in re-rolling mills, cold-
rolling mills and wire drawing mills) has
sharplyfallen from about 3,200 till 1988-89
to about 1,400 thereafter. On the face of
it, it could be due to a reclassification,
to accommodate a change over from
NIC 1971 to NIC 1987. But aclose perusal
of data did not suggest any. correspon-
ding increase in other steel related 3-digit
industry groups. Therefore, we suspect
that enumerationhas become incomplete,
unlessthereis evidenceof a large-scaleplant
closures.
The sharp fall in number of factories
in this industry is in contrast to other
evidence, mainly from the corporate
sector.16 Since mid-1980s, in response to
delicensing, there has been considerable
expansion of existing firms, and new entry
into the industry. Moreover, there seems
to have been a change in the product
mix in favourof' flat' productsandtechno-
logical upgradation leading, in principle,
to greatervalue addition per unit of output
- for example, automobile grade flat
products of thinner gauge and greater
width.
Table 6 shows estimated growth rates
of output from SAIL Year Book, and real
gross value of production and gross
value added using ASI data. Evidently,
growth rates reported by different meas-
ures are roughly of same orders of magni-
tude. However, given the changes in the
industry since delicensing in mid-1980s,
many indications suggest an increase
in value added to value of production
ratio. Since this is not revealed in the
growth rates reportedabove, one suspects
that value added estimates may be under-
estimated.
VI
Summary and Conclusion
Reliable and up to date statistical
informationis vital foreconomic decision-
making, both at the micro and at the macro
level. This exploratorynote tried to assess
the quality of some of the widely used
industrial statistics. IIP is the most widely
used leading indicator of output trends, as
it is available monthly, with least time lag,
and with analytically meaningful dis-
aggregation. NAS is the only source of
data for the unregistered manufacturing
value added and capital formation. ASI
providesdetailedinformationon registered
nianufacturing.though with considerable
time lag. Long-termcredit by development
finance institutions (DFIs) and the initial
public offerings in the primary capital
market are also widely used to predict
fixed investment trends in the private
corporate sector.
How reliable are these data sources?
Have their quality deterioratedover time?
This note sought to answer these questions,
using simple correlation?o.~oefficient
method to time series of ann'ualgrowth
rates. The following are the.main results.
(1) Annual growth rates of the IIP for
manufacturing and value added in manu-
facturing (registered and total) sector are
highly correlated, for the periods1971-85
(Period I). But the association turns
statistically insignificant for 1981-96
(period II), and parts thereof. Correlation
between the IIP and the ASI for cross-
section of 2-digit industry groups is not
statistically significant for both the time
periods. Since the IIP is a lead indicator,
it could have been used to predict value-
added trends in Period I, that is, during
the regime of investment and output
licensing. However, it cannot be used in
the same way in the liberalised regime
(Period II). The study supports the view
that the quality of IIP as deterioratedsince
the 1980s with gradual industrial

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9.'>>?~~~~~~~~54~~ ~Economic and Political Weekly February6, 1999

deregulation,as muchof the primarydata
forestimatingthe indexwas a by-product
of the regulatoryregime.
(2) Widelyusedinformationon (i) deve-
lopmentfinanceinstitutions'sanctionsand
disbursements of termloansand(ii)capital
raisedin theprimarycapitalmarketis not
correlatedwithfixed capitalformationin
theprivatecorporatesectorsince 1980-81.
Therefore,this financialinformationis a
poor predictorof the real trends in the
deregulatedregime.
(3) In principle,thoughthere is a strict
technicalrelationshipbetweenelectricity
use and manufacturingvalue added, in
realitythis associationwas not found to
exist in India,This findingquestionsthe
quality of the recordedinformationon
electricityinputandvalueaddedestimates.
(4) During 1977-78 and 1993-94, while
the employmentshare of unregistered
sectorin totalmanufacturing hasgoneup,
thecorresponding valueaddedsharewent
down. These inversemovementscan be
reconciledonlyundertheassumptionthat
thelabourproductivity growthin unregis-
teredmanufacturing is lower thanthatin
theregisteredsector.A closerexamination
seemsto strengthenthe suspicionthat'the
parameters of valueaddedperworkerused
in computingoutput could have been
seriouslyunderestimated.
(5)Inrecenttimes,theASIseemsto under-
reportnumberof factoriesandhencevalue
addedeven in a well-organisedindustry
like steel. It, therefore,raises suspicion
thatthequalityof theASIdatais declining
in recentyears.
Admittedly,resultsof this exploratory
effort have yielded only bits and pieces
of evidence on the quality of the data.
Theyneverthelessseemtotellareasonably
consistentstory: India's industrialdata
systemhas weakenedover the years,and
thereforetheinformationmaynotreliably
capture the underlying real tendencies.
Manyof the widely used indicatorsand
presumedtechnical relationshipshave
little empirical validity. This finding
supportsthe popularperceptionof the
deterioratingdataquality.If thisinference
is correct,thenthereis an urgentneedfor
athorough re-examination,and revamping
of the statisticalsystem.
Notes
[Followingthe usualdisclaimer,the authorthanks
K V Ramaswamy, M H Suryanarayana and
A Vaidyanathanfor theirdetailed comments and
suggestions on earlier versions of this study.]
I For a detailed account of the strengths and
limitations of all these sources of data, see
Pradhanand Saluja (1998a).
2 Pradhanand Saluja (1998b) gives details of
Economic and Political Weekly February6, 1999
therevisionthattheIIPhasrecentlyundergone. we discovered during our field-work in
3 Brief Note on the Revision of Base Year of Bangalore city in mid-1980s, was that many
Indexof IndustrialProductionfrom 1980-81 mediumsized factoriesthatwe hadpersonally
to 1993-94 (undated). visited were missing from the factories' list.
4 In fact, the CSO officials have admitted Thoughwe do not have documentaryevidence
this. To quote Kulashresthaand Kolli (1995): to support our case, we do believe there is a
"Afterliberalisation,some of the majorunits case forexamining the qualityof the factories'
including some of the PSUs have not been listmaintainedby theInspectorateof Factories.
furnishingreturns.This makes the estimation 15 To quote Raj (1986:11), "The number of
procedure for non-responding units very 'registered firms', i e, those registered with
difficult in the absence of information on income tax authorities, has been increasing
whetherthe unit is in existence or closed, or at a phenomenal rate from about the middle
on strikeoron partialoperation.Government's of the 1960s. Many of them are known to be
effortsto persuadethe units to furnishreturns used by manufacturing enterprises as
now met with little success. The GOI have commission agents for purchaseof inputsand
subsequentlyissueda Piess i Jote... reiterating sale of products, thereby siphoning away
the requirementof submission of returnsby profits through various forms of transfer
the industrial undertakings to concerned pricing. Underestimationof value added in
technicalagencies. Despite this, the coverage this manner has been therefore probably
of units has been steadily declining".(p 125) increasing in scale through this period".
5 Unless otherwise mentioned, all variables in 16 After delicensing of steel industry in 1985,
this paper are in real terms. there was considerable new entry into the
6 A reportin The Times of India (January16, industryas evident from capital mobilised in
1999) said, 'The Departmentof Statistics has the primary stock market and term loans
not releasedthe industrialproductionfigures grantedby development finance institutions
for November 1998 on the ground that the Of the 48 listed 'mini steel' companies listed
data providedby the departmentof industrial in Bombay Stock Exchange in 1997, half
policy and promotion (DIPP) on manufac- entered the industryafter 1985. For detailed
turingsector 'suffers from lack of quality' ... statistical information,see the annual report
'Despite repeated efforts, the DIPP ... has of the Departmentof Steel, 1997-98.
not furnishedthe informationregardingitem-
wise response rate as well as the method References
of estimation or non-response' Mr Asthana
[Secretary in the department of Statistics] Ahluwalia,IsherJudge( 1985):IndustrialGrowth
said (p 17). in India: Stagnation since the Mid-1960s,
7 Till 1982, Rangarajah'sforecastof corporate Oxford University Press, Delhi.
investmentwas reportedin the Economicand Kulashreshtha,A C and Ramnesh,Kohli (1995):
Political Weekly. In the recent years, these 'Impactof Liberalisationon DataCollection',
were officially estimated,and reportedin the The Journal of Income and WealtlhVol 17.
No 2, July.
Reserve Bank of India Bulletin.
8 There have been many studies on the 'black Nagaraj, R (1989): Sub-Contracting in Manu-
economy' that in fact looked carefully at facturing Industries: The BlangacloreEx-
specific unorganisedmanufacturingindustries perience, Ph D thesis(CentreforDevelopment
like powerloom weaving, dyestuffs,etc. Most Studies, Thiruvananthapuram, Jawaharlal
of them estimate the extent (level) of Nehru University, New Delhi.
underestimationwithout saying if the black - (1994): 'Employment and Wages in
economy is growing fasterthanthe measured ManufacturingIndustries:Trends,Hypothesis
economic output. and Evidence', Economic and Political
9 This method of looking at the relative Weekly, Vol 29, No 4, January22.
employmentand value addedsharesto detect Paul, Samuel and C Rangarajan(1974): Short-
output underestimationis an old one, widely Term Investment Forecasting, Macmillan,
used in studyingthe long termtrendby Arthur Delhi.
Burns and Simon Kuznets. Pradhan, Basanta K and M R Saluja (1998a):
10 Sourcesof data for Figure 1 are, NSS employ- 'Industrial Statistics in India: Sources,
ment and unemploymentsurveys, and NAS, Limitations and Data Gaps', Economic and
various issues. Political Weekly, Vol 33, No 21, May 23.
I I Fora carefulandfullerdescriptionof the ASI's - (1998b): 'RevisedIndexof IndustrialProduction:
A Note', Economic ciandPolitical Weekly,
methodology,see PradhanandSaluja( 1998a).
12 Growingnon-response toASIis widelybelieved Vol 33, No 28, July 11.
to be yet anotherreasonfor deterioratingdata Reserve Bank of India Bulletin (1986): 'Index
quality. On a closer examination,we did not Numbersof IndustrialProduction- Revision
find any statisticallysignificant deterioration of Weights', Reserve Bank of India Bulletin.
in the extent of non-responseover the period Vol 40, No 10, October.
1980-81 to1994-95. Singh, Manjit (1990): The Political Economyof
13 These figures refer to all-India, excluding Unorganised Industry:A Studl)of the Labour
Assam, as the censuses were not conducted Process, Sage India, Delhi.
in that state. Raj, K N (1986): New Economic Policy, V T
14 This evidence on the growing extent of non- KrishnamachariMemorial Lecture. Oxford
registrationof factories under the factories University Press, Delhi.
act seems to reinforcefindings of many field- Srinivasan,T N (1994): 'Data Base for Develop-
work based micro studies [Nagaraj 1989; ment Analysis: An Overview', Journal of
Singh 1990]. But what is more surprisingas Development Economics, Vol 44.
355