"In the Reserve Bank, we are handicapped by the reliability of some of the basic data that we need to use in policy calculations.
"In particular, the data we get on unemployment and wages do not inspire confidence as regards quality. . . making us second-guess how the provisional numbers may be revised upwards," Governor Duvvuri Subbarao said on Tuesday.
"Sharp volatility in Index of Industrial Production data is a problem. We need to understand what is leading to data volatility as it may lead to policy miscalculations," the Governor told the 5th RBI Statistics Day celebrations at the RBI headquarters in Mumbai.
"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," he said.
"When we were making the policy, the IIP numbers available to us in February 2010 was 6.8 per cent, whereas the economy was actually growing much faster.
"The provisional numbers, which are off the mark by significant margin, can mislead policy calculation," he warned.
The Governor admitted that such revisions are also factors behind the RBI making inflation projections that proved to be below the actual number in the last fiscal year.
RBI had initially forecast an annual inflation at 5.5 per cent by March'11, but subsequently was forced to revise it upwards to a high 7 per cent and then to 8 per cent.
And finally when the year ended, it was at a much elevated level of 8.98 percent, which was ironically revised further upwards to 9.68 per cent in June.
Similarly, the March IIP numbers were also revised upwards to 7.8 per cent in June from the initial reading of 7.3 per cent released in May, while a sharper revision was seen for the December IIP, which was upwardly revised to 2.5 per cent from the provisional reading of a poor 1.6 per cent.
"Erroneous signals from the then-available IIP data suggested moderation in growth and demand," as well as "the larger-than-usual upward revisions to the past inflation data, had the RBI's inflation projections remaining systematically below the actual outcome," Subbarao admitted.
On the impact of the regular trend of sharp data revisions, the Governor said, the RBI's policy formulation is also
"It is important for policy purposes to determine whether the root cause of such behaviour is the production decisions in the wake of uncertainty or whether it is due to the compilation process," Subbarao said and explained that items, particularly with a manufacturing cycle of longer than a month can lead to sharp month-to-month spikes/dips, not necessarily consistent with the underlying demand in the economy.
There's more to IIP change than base year
2G:Attorney general, law secy to appear before PAC
'Changes in banking norms a must'
No decision on lowering GDP projection yet: FM
Inflation at 5-6% ideal for India: Pranab