Y V Reddy: Random thoughts on statistics and surveys
Valedictory address by Dr Y V Reddy, Governor of the Reserve Bank of India, at the SEACEN - Irving
Fisher Committee - RBI Workshop on Use of Surveys by Central Banks, College of Agricultural
Banking, Reserve Bank of India, Pune, 29 June 2007.
* * *
Dr. Barman, Mr. Paul Van den Bergh, Dr. Karunasena, Mr. Sandip Ghose, distinguished participants,
ladies and gentlemen,
I am thankful to the organisers for giving me the privilege and pleasure of being with you at the
Workshop on "Use of Surveys by Central Banks", organised jointly by the South-East Asian Central
Banks (SEACEN), Irving Fisher Committee (IFC) - Bank for International Settlements (BIS) and
Reserve Bank of India (RBI). It is a collaborative effort of several institutions and spread over many
countries, but with a unity in purpose. Let me extend a warm welcome to all our visitors.
I notice that participants from the central banks of several countries from Asia and Far East are
participating and we had the privilege of having the guest speakers from the European and Asian
central banks, apart from the speakers from the RBI. The schedule of the workshop indicates that a
wide gamut of subjects relating to surveys in central banks has been deliberated upon in the workshop
and different country perspectives have been appreciated. The valedictory address that I have been
called upon to deliver is basically in the form of sharing some thoughts on statistics and surveys
considered relevant from the perspective of central banking.
Today is the National Statistics Day, commemorating the birth of P C Mahalanobis, FRS the founder of
Indian Statistical Institute, who had contributed immensely for the development of statistics globally
and in particular, in India. Professor Mahalanobis was President of International Statistical Institute in
1957, Chairman of United Nations Statistical Commission during 1954-58, and was associated with
many other international fora. He was the architect of the Central Statistical Organisation and the
National Sample Survey Organisation - two major statistical wings of Government of India. In his view,
statistics is a "key technology", having its bearing in every walk of life. This message has far reaching
implications and the objective of National Statistics Day is to assess where we stand vis-à-vis
international standards. Let me add that we observe Statistical Standards and Codes and follow best
practice on coverage, periodicity and timeliness on data dissemination as prescribed in IMF's Special
Data Dissemination Standards (SDDS).
As regards importance of statistics in national development, Professor Mahalanobis said:
"Statisticians, in fact, have a four-fold task in national development. Firstly, to conduct properly
organised surveys for the collection, analysis, and interpretation of relevant statistical data. Secondly,
on the basis of such information, to help in the choice of an efficient programme of action. Thirdly,
when the plan goes into operation, to measure the progress of work and to assess the results
achieved. And, finally, on the basis of such assessment, either to report that the work is proceeding as
desired or to give the danger signal that the results attainted are not proceeding in accordance with
the plan or are not commensurate with the effort; in which case the plan itself may have to be
modified. In this way the four-step cycle would begin again."
This succinctly explains the importance of statistics in the formulation of policy and its evaluation.
Infact, many developments since the statement was made, in terms of technology, quantitative
methods, and marketisation as well as globalisation have reinforced what Professor Mahalanobis
observed. The use of statistics has increased manifold and the demand is for real time or near real
time data on almost all aspects of life and economy. The System of National Accounts and the related
accounting system on balance of payments, fiscal and financial statistics provide the basic framework
for collection of statistics. As the monetary policy responds quickly to emerging developments in the
economy, and its effectiveness depends on market expectations, the set of data required for the same,
like business expectations and inflation expectations, need to be collected through quick surveys.
With increased globalisation and liberalisation of financial system, informed decision holds the key to
successful implementation of policy. While administrative (regulatory) and supervisory information are
collected by statutory and control returns, information gap on financial statistics and other related
areas in central banks is typically supplemented by surveys. In today's world, central banks' surveys
conducted exclusively for monetary policy can broadly be defined as a type of analysis of conjunctural
developments.
I would like to highlight the importance of surveys with reference to experience with regulation. In
some economies, the control systems in financial and external sectors were dismantled without putting
in place appropriate monitoring mechanism, which led to a vacuum in availability of information on
ongoing economic activity. In other words, deregulation must be accompanied by appropriate
monitoring systems, or alternatively, by surveys to make up for the loss of information due to removal
of controls. In fact, many analysts hold the view that the financial crisis that hit the Asian economies
about ten years ago was partly occasioned by inadequate data on the activities of the banking system.
In highly deregulated regimes, sometimes, conducting a survey is the only option available for
obtaining the data necessary for policy making. However, we do recognise that a survey has to be
properly designed to serve the objectives. Firstly, quality of data derived from surveys depends on the
methodology and standards used for these surveys. An international conference of this type is useful
for sharing of country experiences on these issues and, hopefully, you will benefit by learning from
varied experiences in making judgments on the complex issues involved.
Secondly, in a country like India with significant diversity, the matching of survey-design with target
population is important. The diversity encompasses several languages, different customs and culture,
and variation in levels of literacy and understanding. No doubt, respondents vary across objectives of
surveys.
Thirdly, even a perfectly prepared questionnaire is of no use if large number of people fail to complete
it. Thus, the main goal of any survey implementation plan should be to obtain a high response rate. As
far as our experience with survey responses is concerned, we do not encounter problems with the
regulated entities like banks from whom the response is generally more than 90 per cent in most of the
surveys conducted whereas the response rate drops significantly when the survey is conducted
amongst non-regulated entities. However, the response of households to the inflation expectations
survey is almost 100 per cent. Even after increasing the sample size considerably, we continue to get
good response, though it is difficult to ascertain the reliability of responses from different categories of
households, in view of the varying degrees of awareness. In any case, the erroneous responses in this
sector are likely to be higher than in the case of banks and other financial institutions, where the
percentage of erroneous responses is normally remaining in single digit.
Fourthly, survey data are subject to well-known types of bias. For example, since respondents know
that they are being studied, and have at least some idea why, they may change their answers, either
consciously or unconsciously, to show themselves in a better light or to conform to the expectations of
those who are studying them. This is fairly common in inflation expectation survey.
Fifthly, from the perspective of policy-making, the primary purpose of conducting a survey is to
produce data that will help answer important policy questions. Once collected, the data must be so
collated, organised, summarised, and described as to be eminently useful for policy purposes. For
example, summary measures such as means, frequencies, standard deviations, and correlations and
creating tables and graphs that illustrate important findings, are of immediate use to us, though they
need to be viewed with great caution, especially in terms of level of confidence that one can have in
the sample estimate.
Finally, a word of caution. If conducted properly, surveys can accurately represent the opinions and
judgments of a population of people but this doesn't mean that these opinions are right. Further, a
survey can establish whether or not a relationship exists between two variables but may not be
sufficient to determine the direction of causality.
Let me take this opportunity to share with you the survey-work by RBI in India and our current
intentions.
Among the surveys conducted by RBI in the past, the most important one was "All-India Rural Credit
Survey". Results of this survey had significant bearing on subsequent credit polices of RBI. The
objective of the survey was to collect data that would assist RBI and the Government of India in
formulating an integrated credit policy for rural credit and to assess the extent of indebtedness of rural
households to financial institutions in the organised and unorganised sectors. After nationalisation of
major commercial banks in 1969, there was need to evolve a suitable credit policy to meet the
developmental needs of select sectors of high priority. In this context, RBI conducted two separate
surveys viz., "Survey of Small Scale Industries" and "Survey of Traders and Transport Operators". In
addition, the "Survey of Non-Profit Institutions Serving Households" (NPISHs), conducted by the RBI,
provided information about the structure, employment, financial resources, financial performance, etc.,
of NPISHs. Furthermore, an ad hoc survey on "remittance of non-resident Indians" helped the RBI in
formulating policies on non-resident deposits.
At present, we, in the RBI, are conducting around 20 surveys on a regular basis, with varying
periodicity; we also conduct several need-based ad hoc surveys. In view of the size of the population
of the country - in terms of individuals, corporates and financial institutions - we are sometimes
consciously not considering the entire sector while conducting some of the surveys because of cost,
time and efforts involved. In such cases, we are conducting some supplementary surveys to capture
more details from reduced samples like the small borrowal accounts survey in the case of banking
sector and survey of unclassified receipts in the case of external sector.
The surveys conducted by the RBI can be broadly classified into five categories. In the external sector,
these include survey of foreign liabilities and assets for corporate, insurance and mutual fund sectors;
coordinated portfolio investment survey; survey on software export; unclassified receipt survey used
for BoP; survey on balances in Nostro/Vostro account used in BoP, and survey on non-resident
deposits. In the banking sector, the surveys cover distribution of credit, deposits and employment;
composition and ownership of deposits; investment portfolio; debits to deposit accounts; international
assets and liabilities of banks and small borrowal accounts. In the corporate sector, the survey of
performance of private corporate business sector, conducted since 1951-52, has been of considerable
interest to the analysts.
Surveys in India directly relevant to monetary policy are industrial outlook survey, inflation expectation
survey for households, and survey of inventories, order books and capacity utilisation. There are also
ad hoc
surveys such as census of non-banking financial companies not accepting public deposits.
Of greater interest to this group may be the steps recently initiated by the RBI to make use of survey
methods for operational purposes like assessing the extent of financial inclusion. You may be aware
that in India, Government as well as the central bank attach importance to financial empowerment of
the rural poor and the RBI has taken steps for Financial Inclusion and spread of the Self Help Groups.
I should confess that we have to considerably strengthen the surveys required for formulation of
monetary policy. In this regard, we are collecting information on the surveys conducted by other
central banks. Among the surveys conducted by other central banks, we observe that some relate to
household sector such as access to financial services, demand for housing, consumer confidence,
credibility of monetary policy, etc. There are also those relating to markets such as assessment of
efficient and fair conduct of financial markets, survey of professional forecasters and of economists'
expectations. I would, therefore, urge Dr. Barman and his team to monitor international developments
carefully, take into account the country experiences and draw upon the expertise of the multilateral
institutions in charting the further course of survey work in the RBI.
Before concluding this address, I would like to endorse two observations made by Governor Njuguna
Ndung'u, Governor of the Central Bank of Kenya a couple of weeks ago (12th June 2007) in his
opening address at the workshop on the compilation of banking statistics in Kenya. First, there are
varied users of the banking data such as government, central bank, market participants, researchers,
etc. The data and analysis, therefore, have to be user friendly. Second, he stated that the dynamic
nature of our economies necessitates our becoming dynamic in our approach to data compilation. For
my part, I would like to add, by way of concluding remarks, that in data or surveys, there should be
consistency with global standards but the scheme has to be tailored to meet the domestic interests
and needs. No doubt, we have to learn from each others' experience but need to adapt to the
country-specific context.
Let me conclude by wishing you all the best, and a safe journey with pleasant memories of a
productive stay in Pune.
Thank you.