The RBI had set up a nine-member group in March 2006, on ‘Development of Leading Indicators for Indian Economy’ according to best international practices.
MUMBAI: Information on important indicators like employment, wages, sales, savings and investments have to be compiled at quarterly intervals to capture the “turning points” in the economy, the technical advisory group set up by the Reserve Bank of India has recommended.
The group noted that data like housing starts, housing price index and capacity utilisation are not complied at reasonable aggregation and “now that the RBI undertakes monetary policy review at quarterly intervals, inputs on movements of economic growth for quarterly reviews should also be of the same or higher frequency.”
The RBI had set up a nine-member group in March 2006, on ‘Development of Leading Indicators for Indian Economy’ according to best international practices. The group, chaired by RBI executive director R B Barman, was to suggest a methodological framework for economic indicators with a view to assisting monetary policy formulation and to guide and oversee its implementation.
Majority of conventional leading indicators used in developed economies are not available at monthly or quarterly intervals in India, the group observed.
Unlike developed countries like the US important data like housing are not available in India. Also figures on indicators of employment, wages, sales and savings are either partially available or available only on an annual basis.
The group has suggested that the RBI play “a pivotal role” in business cycle analysis. “RBIs involvement is necessary to ensure that robust indicators are developed and policy response is based on reliable information base in the field,” the group said.
Since monetary measures impact after a certain lag, information on the turning points needs to be made available well in advance, the group said, adding that understanding the phases of expansions and contractions of economic activity is of paramount importance to the RBI.
It has recommended that the lead period in the case of quarterly data (ie, non-agricultural GDP) should be at least two quarters ahead and in the case of monthly data (ie, Index of Industrial Production), four months ahead.
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