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Government planning new gauge to track industrial production and export growth every month

The government is planning a new gauge to track industrial production and export growth every month after a recent set of data pointed towards inconsistency between the two readings.

The Index of Industrial Production, which measures factory output growth, and the export growth numbers over the past few months have shown a huge divergence. Growth in exports has remained robust despite a slowdown in industrial activity, prompting economists and policymakers to speculate that exporters may be mispricing their transactions to bring back black money stashed in tax heavens abroad.

While IIP for July fell to a 21-month low of 3.84%, exports during that month grew 72% in rupee terms. The following month, industrial output rose 4.04%, but exports registered a growth of 40%. Mispricing refers to under- or over-invoicing of transactions.

The commerce and industry ministry has carried out a study that compares factory output growth of specific items to their exports from 2004-05 to 2010-11. The ministry proposes to use this data to devise the index.

"We have conducted a comprehensive study matching export growth in manufacturing to the disaggregated export data," said a senior official at the ministry.

The Department of Industrial Policy and Promotion in the ministry is responsible for collecting over 70% of the data on manufacturing in the IIP.

Economists say there has always been an element of mispricing in trade data. Discrepancies also arise as the IIP is a volume index while exports are captured in value terms. But, they say keeping in mind all the caveats, there is still some mismatch.

"There is something partially wrong," said Abheek Barua, chief economist at HDFC Bank. "With 30% plus export growth, we should be getting a higher level of industrial growth."

The ministry has sent its study to economists in the Reserve Bank of India for their comments and suggestions.

"We plan to put out these numbers and also come up with a monthly report matching export growth and industrial production. Exports are finally goods produced domestically," said the official.

Matching production growth and trade data is not an easy exercise as the grouping of items is very different. Exports are classified according to the Indian Trade Classification Harmonized System (ITC HS) code, while industrial production is recorded under the National Industrial Classification.

Economists in the ministry have created tables that will match 268 items under 22 categories of the manufacturing sector with their export growth.

"This is a good move from a policy perspective, it will help solve a lot of puzzles," said Sunil Sinha, senior economist at ratings agency Crisil.

Sajjid Chinoy, India economist at JP Morgan, said India's export performance was in line with data from ports. He said exports were also higher as more goods were being sent to developing nations where economic activity remained buoyant.

JP Morgan had said in a recent report that Brazil's trade discrepancy was higher than that of India.

"By 2010, Brazil's data discrepancies still existed with 18% of its trading partners-almost double that of India," the report said