Mumbai, Nov 26 The Reserve Bank of India's projections on inflation and growth in the Indian economy are based on a balanced synthesis of robust econometric analysis, contemporary economic conditions, and forward-looking sectoral perspectives, its Deputy Governor Poonam Gupta said on Thursday.
Speaking at a Pre-release Consultative Workshop on Base Revision of Consumer Price Index (CPI), Gross Domestic Product (GDP), and Index of Industrial Production (IIP) organised here by the Ministry of Statistics and Programme Implementation, she stressed that recent reviews show that the RBI’s inflation and growth forecasts have remained unbiased compared with actual outcomes.
Gupta contended that under the flexible inflation targeting framework, monetary policy decisions operate with well-recognised transmission lags that impact output and inflation over several quarters, making it essential for policymakers to remain forward-looking. Consequently, the Monetary Policy Committee provides projections for inflation and growth up to four quarters at its bi-monthly meetings.
However, she said some forecasts can turn out to be wrong during periods of high uncertainty and unforeseen shocks, and such errors were a global phenomenon. Inflation forecasting in India is further complicated by the high and outdated weight of food in the CPI basket and the volatile nature of food prices, she added.
Gupta further pointed out that in order to improve forecast accuracy, the RBI is recalibrating its models to rely more on recent and relevant data, while also expanding stakeholder consultations, including day-long workshops with professional forecasters.
She further stated that apart from reducing forecast errors, avoiding any systematic directional bias is equally important, and recent reviews show that the MPC’s inflation and growth forecasts have remained unbiased compared with actual outcomes.
Ahead of every policy meeting, the RBI holds extensive interactions with industry, financial markets, banks, NBFCs, analysts and economists to gather real-time feedback on the outlook. Regular engagement with the National Statistics Office also helps in refining the central bank’s forecasting methods, she added.
Addressing the event, Secretary, Statistics and Programme Implementation, Saurabh Garg said the government is working towards strengthening the National Statistical System, keeping in mind the eight principles of timeliness, enhanced frequency, granularity, coverage, use of latest technology, optimisation of administrative data, harmonisation of different datasets available in the country and improved dissemination.
The function was organised by the ministry to brief key stakeholders on the proposed base revision of GDP, CPI and IIP ahead of the release of the new series next year.
Technical presentations by senior ministry officers provided an overview of improvements in data sources, methodologies and compilation techniques in GDP, CPI and IIP. In the major updates of the GDP 2022-23 series, it is informed that activity-wise share of turnover data from the Management & Administration Form will be used for segregation of activities in case of multi-activity enterprises in the Non-Financial Private Corporations (NFPC) sector.
GST data will be explored for corroborating the frame of private corporations and the regional allocation of GVA across industries. GVA estimates of the unincorporated sector will be compiled using industry-wise productivity information from the Annual Survey of Unincorporated Sector Enterprises (ASUSE) and corresponding workforce estimates from the Periodic Labour Force Survey (PLFS). In view of the availability of annual results from these surveys, estimates will be generated annually for the unincorporated sector in the new series, as opposed to the indicator-based extrapolation approach followed in the existing series.
In the proposed changes in CPI, the ministry highlighted the enhancement in coverage in terms of markets, towns and items, adoption of Classification of Individual Consumption by Purpose (COICOP) 2018, refinement in methodology of index compilation, inclusion of new data sources, including administrative and online data, use of the latest technology, and more granular data dissemination.
The major changes and improvements in the base-year revision of the Index of Industrial Production (IIP) focus on expanding coverage, enhancing data quality, and better aligning the index with the evolving industrial landscape through an extensive review of the existing item basket, reporting units, replacing non-operational factories with active units and improved identification and treatment of not elsewhere classified items. MoSPI is also working on methodological issues and the availability of data to compile chain-based indices and seasonally adjusted IIP series in line with international best practices.
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