Bad data? Why $9.4 bn export reporting 'mistake' is a scandal

Is a $9.4 billion hole that difficult to spot? Or a $15 billion export surge in just one industry sector all of a sudden?

Well, if one is to believe Commerce Secretary Rahul Khullar, exports were overstated by around $9.4 billion during April-October this year because of a system crash in the commerce ministry and mistakes in data classification and data entry.

This is his incredible statement: "Mistakes take place. Every number for the last seven months was revised. This notion that the government is deliberately cooking up (data) and telling you lies has got to stop," The Economic Times quoted Khullar as saying on Friday.

There is no reason why Rahul Khullar's ministry should not be held equally accountable for this serious lapse. AFP

Mr Khullar, we haven't accused you of cooking up data- so one does not know where that comes from, unless it is a guilty conscience. Your boss, Anand Sharma, who has just had a fiasco with FDI in retail, cannot afford an export data scam.

Business Standard reports your statement thus: "I have always maintained that these are provisional and unreliable numbers (emphasis ours). Because of the ongoing controversy on how reliable the numbers are, we have gone back to the books, we corrected the numbers and we did find mistakes and it has not changed any major thing."

It gets worse. Listen to what the BusinessLine quotes you as saying: "It is not as if you have a balance of payments crisis because you didn't know the (export) numbers were wrong. But yes, the trade deficit is a little worse now than what was expected."

Well, Mr Khullar, please listen to your own statements- and we are assuming they have been reported correctly - and tell us if the government's enforcement directorate or income tax officials will happily let companies off the hook if they said they had a computer crash and data entry errors and hence did not pay crores in duty as a result. If a businessman told you "mistakes happen," will you let him go scot-free? There is no reason why your ministry should not be held equally accountable for this serious lapse.

Mr Khullar, this appears to be a transparent effort to gloss over several serious issues that will have widespread ramifications for the believability of Indian economic data. For six reasons at least.

First, you admit that your ministry's Directorate General of Commercial Intelligence and Statistics (DGCI&S), is producing "unreliable data". If this is the case, why didn't anyone report it before outsiders - including Firstpost and three analysts from Kotak Securities - pointed this out? How long has this unreliable data reporting been happening? Have you set up an enquiry to fix the problem once and for all?

Second, if the computer crash at DGCI&S happened at the start of the financial year, how come it took you six months to report the problem to us? Didn't you put in place elementary checks right then to see that the country's data - which moves markets and which the whole world relies on - was correct? Why put out data you yourself believe is wrong?

Third, your attempt to pretend that this is some kind of minor goof-up boggles the mind. The question is not whether the misreporting of export figures damaged our trade balance, but how you failed to spot it. BusinessLine quotes you as saying: "Even if the accounting or statistical system collapses, the RBI (which has a cross-check mechanism) would have raised alarm bells if the reserves are lesser. The fact that there was no dramatic drawdown on the reserves is a good indication that these (export) numbers were not so far off the mark."

This is one of the most callous statements I have heard from officialdom. Basically, it is a cop-out, since you are effectively saying if we goof up someone else will alert us about it. What does this say about your ministry's own sense of responsibility on such important figures?

Fourth, the real goof-up is not merely $9.4 billion, but much bigger. For example, the figures given out on Friday spoke of a $15 billion over-reporting of engineering exports, and a $12 billion underestimation in the case of petroleum and gems and jewellery. The net figure may be $9.4 billion, but what has really happened is a $27 billion error - since one error in engineering and another in petroleum and gems cannot really cancel each other out.

In short, taking other data entry errors into accounts, we are talking about errors adding up to over $30 billion that went on for months and no one smelt a rat. The Financial Express says that "there were exaggerations of up to $0.5-1 billion each in some other product categories and 'all sorts of things', including double counting."

Mr Khullar, you cannot simply allow "all sorts of things" to go on under your watch.

Fifth, the problem does not relate only to wrong numbers. In fact, the suspicion raised by the Kotak report was not just about data errors, but whether exports were being deliberately overinvoiced to bring in unaccounted money, now that things are getting hotter for hot money to stay on in tax havens. So, the fact that your wrong numbers "inflated exports by about $9.4 billion, which means a margin of error of about 4-5 percent" is way off the mark. You need to look at the authenticity of even those numbers.

Sixth, how do you know that the errors pertain only to this year when the DGCI&S computer and software crashed? The Kotak report that originally raised doubts about your export numbers talked about dubious figures in 2010-11. That's last year. Not this year.

Let me refresh you on what the Kotak report said, which Firstpostreported in October:

"Our study of exports data of major engineering companies (including automobiles and metals) shows that the increase in their exports does not reconcile with the steep increase in official exports data. In fact, the gap is quite substantial."

The official export data showed 79 percent year-on-year export growth in 2010-11. Exports by engineering companies in the BSE 500 (the cream of India Inc) show just 11 percent growth. If you want to know the difference in dollars, the engineering export jump accounts for $30 billion (up from $38 billion to $68 billion). The figures for the BSE 500 show a jump of just Rs 61 billion (rupees, not dollars). Converted at the rate of $ 1= Rs 44, this is just $1.38 billion.

As we asked then: Where did the rest of the $28-and-odd billion come from? From itsy-bitsy small engineering companies that are not in the BSE 500? Or was so much of illegal ore mined and sent by the Reddy brothers and their ilk in Goa, Odisha, Karnataka, and Jharkhand?

Or, as the Kotak report suggests, could it all be overinvoiced exports?

So, Mr Khullar, if the data went wrong this year due to a computer crash, what happened last year? Another unreported computer crash? Or did we really do phenomenally well in 2010-11?

Either way, this is a fit case for a complete investigation by the Comptroller and Auditor General. Who knows, we might end up with a data-scam that is even larger than the 2G spectrum one. It is up to you and your boss Anand Sharma to find out.


Published Date: Dec 10, 2011 10:41 am | Updated Date: Dec 20, 2014 07:33 am



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