Each of the 34 million taxpayers pays Rs 1,500 every year for all the data released by the government of India. The annual budget of the Ministry of Statistics and Programme Implementation (MoSPI) – the apex statistical ministry in India – alone was Rs 5,000 crore this year. If clubbed with other statistical wings of the central, state and local governments as also with the spending on data released by other public authorities, the tab that an average Indian picks up for the country’s statistical system goes up manifold. The MoSPI budget alone has trebled over two years. Yet, the quality of data that are released in India has deteriorated considerably in the recent past. We now pay a rapidly increasing price for official data and, in turn, get numbers that are simply fudged or have higher degrees of error.

On May 31, the government released India’s GDP data for the fourth quarter of 2011-12. The official release claimed a 5.3 per cent GDP growth. But it turns out that the GDP data incorporated a surplus of $10 billion in the external trade account (export minus import of goods and services). Data released by the commerce ministry show that during the same quarter, India had a goods trade deficit of $44 billion. The maximum quarterly surplus that India has ever generated in services (mainly software) trade is $15 billion. So, rather than a $10-billion surplus, as surreptitiously claimed in the GDP figures, a deficit of $25-30 billion in India’s trade account is more likely. If we take account of this anomaly, then GDP in the January-March quarter grew at an even worse rate of 1.5 per cent and not 5.3 per cent, as the headlines would have us believe.

Given the severity of the faux pas, the government has had to publicly acknowledge and revise such lacuna in data on several occasions. For instance, it had to rework GDP data for the quarter ended June 2010, industrial production data for January 2012 and foreign trade data for several months during the last financial year. However, more often than not, the government merely revises such data without providing any reason. The objective here is not to find fault with the government’s data-generating processes. Instead, it is to explore the implications and reasons for the publication of such erroneous data.

Government data is a key ingredient for financial decision-making by individuals, families, corporations and even policymakers. For example, if the current inflation rate is at 12 per cent and official data captures it correctly, one might be induced to avail of a home loan at a 12-per cent interest rate. If, however, official data inaccurately reports the inflation rate at, say, eight per cent, one might find the real interest rate too high and postpone the decision to buy a house. Similarly, the impact on the investment decision of a corporate house would differ considerably depending on whether official data set the yearly growth in investment at 7.6 per cent or 17.4 per cent (in 2003-04, both figures were official data reported at different points of time). Wrong data lead to wrong decisions and have a negative effect on the economy as a whole.

There are several reasons for the huge inaccuracies and frequent and sharp revisions in official data. First, the statistical system, including the legal provisions governing data collection, is inadequate.

Second, during a volatile economic climate, statistical models used by official agencies for estimations do not adequately replicate the reality. Third, there is lack of coordination among the different arms of official data agencies; little understanding of the nature of various data and the inter-linkages therein among ground-level data compilers; and inadequate supervision at higher levels. Currently, these factors seem to be assuming serious proportions in India.

Finally, the public in general and financial market participants in particular are more sensitive to the first data release rather than the subsequent revisions. Keeping such psychological factors in mind, there seems to be an attempt by official agencies to scale down the real extent of economic deterioration during periods of major economic slowdown at the time of the first release of major macro data.

Official agencies are entrusted with the responsibility to accurately report the underlying economic conditions. Deliberate attempts to conceal the real picture can lead to wrong decisions and turn a bad situation worse. It also discredits official statistical agencies.

The author is chief economist at AnandRathi Group and has served as Director of Economic Research and Policy in the Reserve Bank of India