Rebased LSM: Misleading (and flawed?)

The devil, they say, is in the details. This could not have been truer if you are looking at the newly rebased Large Scale Manufacturing (LSM) index. It looked all kosher when the rebasing report was issued last month, as it appeared more inclusive and representative of the industrial activity in the country (read: Welcoming LSM rebasing, published Jan 21, 2022).

What made news was the LSM for 1HFY22 on the revised base of 2015-16 clocked in an impressive 75 percent growth year-on-year. That, on the old base of 2005-06 was at a more modest 3.45 percent. There is no way to say if the reading on the revised base is on point, inflated or otherwise, but there is enough that suggests it is flawed and misleading.

This is how. Recall that the new base has four new exclusive categories, namely wearing apparel, footballs, furniture, and towels. There are other new items added to existing categories as well, with reassigned weights such as preserved milk and mineral water, among others. A look at the detailed data tells the PBS has used monthly export data for wearing apparel, footballs, furniture and towels, instead of production.

Not that the PBS tried to hide it as the rebasing report clearly mentions the use of export data for the aforementioned categories. “It is worth mentioning here that data of the wearing apparel, towel, furniture and football will be collected by PBS external trade section as the data of the mentioned items is not collected by provincial data sources so far, therefore, the export production data of the afore mentioned items has been taken..” reads an excerpt from the rebasing report.

This now explains what appeared a worrying trend especially in wearing apparel segment leading to FY22. Apart from being grossly misrepresentative, there is a bigger problem with the use of export data for these categories. A sizeable chunk of wearing apparel, footballs and furniture production anecdotally comes from the cottage industry and treating the entire export quantity as LSM is grossly inaccurate.

Furthermore, items such as preserved milk which constitute the bulk of increased weightage in the juices category, find no mention in the itemized production data. So now the weight has increased significantly, but the production contribution continues to come from existing items – which is misleading. This is not to say whether this would lead to LSM change for the better or worse –but surely the statisticians should not be left unsupervised.

The rebasing exercise and the census of industries that too after such a long gap – have apparently yielded nothing but change in weights and export quantity used for local production. Market sizing exercise can wait for another day. As the PBS welcomed feedback and comments on the rebasing exercise, here is hoping the glaring error is looked into and addressed.