Commodity Online NEW DELHI: Does Index of Industrial Production (IIP), wholesale price index and related indices released by the government convey a comprehensive picture of the economy at any point of time.
According to Associated Chamber of Commerce and Industry, the answer is definitely no. To enable to take timely action amid rising economic uncertainties due to global financial crisis, ASSOCHAM has proposed the government to devise seven new economic indicators with immediate effect that includes the popular US-type consumer confidence index and index of construction spending and business inventories.
The proposed indicators include Non-Manufacturing Index, Consumer Confidence Index, Quarterly unemployment rate, Housing Market Index, Index of Construction Spending, Business Inventories Survey, Index of Import and Export Prices, according to the Concept paper “New Indicators to check economic uncertainties”.
“It is in the prime interest of the economy to have a close monitor on the activities across various dimensions including: employment, construction, real estate, non-manufacturing sector, external prices and consumer confidence” said ASSOCHAM President, Mr. Sajjan Jindal.
Given the limitations on front of unorganized nature of markets, regulatory issues, possible scope of delegation to agencies to assist in arriving numbers on these indicators, they would help the policy-makers to take a firm stand, well in advance, to counteract the unforeseen economic threats in the long run.
LIST OF PROPOSED INDICATORS: ASSOCHAM
1. Non-Manufacturing Index: With manufacturing data released monthly on productivity (Index of Industrial Production, with a share of 79.3 per cent) and weekly on price (Wholesale Price Index, with a share of 63.8 per cent), there is a need to look upon the Non-manufacturing sector with parameters relating to business activity, new orders, and employment. An Index for the service sector (accounting for more than 55 per cent of the GDP) would ensure the growth target is intact for the years to come.
2. Index of Consumer Confidence: The Chamber Chief said, at least 8-10 thousand consumers across the country should be surveyed each month. A survey of consumer attitudes on present economic conditions and expectations of future conditions would give a clearer picture on the booming or sinking economic confidence in the country.
3. Housing Market Index: This would provide a gauge of not only the demand for housing, but the economic momentum. With the burst in the US housing bubble seeping its way into the financial system; having severe economic implications, India could insulate itself from such a scenario with a Housing market index keeping a watch and hence a check on Housing prices. It may be based on weighted average of separate diffusion indices incorporating present sales of new homes, sale of new homes expected in the next quarter, and traffic of prospective buyers in new homes.
4. Construction Spending: A portion of construction spending is related to government projects in the infrastructure sector such as building Roads and Highways, Educational Institutions, etc. Construction activity by the corporate sector would envisage the pace of future economic activities. It could be derived from the rupee value of new construction activity on residential, non-residential, and public projects. Data should be available in both, nominal and real (inflation-adjusted) terms.
5. Quarterly unemployment rate: The ASSOCHAM further said, an increasing (decreasing) trend in the indicator would suggest a deteriorating (improving) labor market. Quarterly unemployment rate could serve as a good measure to gauge the strength of the job market having a direct link with the strength of the economy. Every employment opportunity comes with an income that gives a household spending power. Spending greases the wheels of the economy and keeps it growing, so a stronger job market generates a healthier economy.
6. Business Inventories Survey: The level of inventories in relation to sales is an important indicator of the near-term direction of production activity. It would enable the policy makers to keep a bird’s eye view on the consumer and industrial demand in the economy. It could show monthly growth rate (positive or negative) in rupee amount of inventories held by surveyed manufacturers, wholesalers, and retailers.
7. Index of Import and Export Prices: These prices indicate inflationary trends in internationally traded products. It would help the policy makers to keep a track on relative price trends externally to contend with the imported inflation phenomenon in a better and timely manner. An index should be compiled for the prices of goods that are bought in India but produced abroad and the prices of goods sold abroad but produced domestically.
