I am delighted and honoured to be at this auspicious
occasion of the first Statistics Day and to inaugurate first
Annual Conference on Financial Statistics. As a member of the statistics
community, it is matter of great pride that June 29, birth anniversary of (late)
Professor Prasanta Chandra Mahalanobis, has been declared by the Government of
India as Statistics Day. I am particularly happy that Professor Parikh is
here who began his professional life in the ISI Statistical Unit in the Planning
Commission and had a great deal of interaction with Professor
Mahalanobis. Statistics in simple terms is defined as the study of the
‘laws of chance’. On this Statistics Day, let me however not take
a chance to talk about field statistics. In the preface to his book on “Statistics
and Truth”, C.R.Rao (1989) writes, which I thought is worth quoting at length,
“Statistics as a method of learning from experience and decision
making under uncertainty must have been practiced from the beginning of mankind.
But the inductive reasoning involved in these processes have never been codified
due to the uncertain nature of the conclusions drawn from given data on formation.
The breakthrough occurred only in the beginning of the present century with the
realization that inductive reasoning can be made precise by specifying the amount
of uncertainty involved in the conclusions drawn. This paved the way for working
out an optimum course of action involving minimum risk, in any given uncertain
situation, by a purely deductive process. Once this mechanism was made available,
the floodgates opened and there was no end to the number of applications impatiently
awaiting for methods which could really deliver the goods. From the time of Aristotle
to the middle of the 19th century, chance was considered by scientists as well
as philosophers to be an indication of our ignorance which makes predictions impossible.
It is now regarded that chance is inherent in all natural phenomena, and the only
way of understanding nature and making predictions (with minimum loss) is to study
the laws (or the inner structure) of chance and formulate appropriate rules of
action. Chance may appear as an obstructor and an irritant in our daily life but
chance can also create. We have now learnt to put chance to work for the benefit
of mankind. All knowledge is, in the final analysis, history. All sciences are,
in the abstract, mathematics and all methods of acquiring knowledge are essentially
statistics.”
What has been the historical development of the statistical system in India? Who
have been its main architects? What has been the role of the Reserve Bank in the
national statistical system? I thought these questions will be of interest to
the audience assembled here today. Historical developments
Let me go back in history. India has a long historical tradition of collection
and use of various kinds of statistics. Kautilya’s Arthasastra (321-296B.C.),
one of the greatest treatise of economics, indicates a system of census and data
collection relating to agriculture, population and other economic activities,
covering villages and towns. In addition, the concept of cross-checking and validation
by independent agents was very much part of the data collection system. Thus,
early evidence established the coexistence of economics and statistics, and their
application for the welfare of the states. Subsequent historical anecdotes based
on Huen Tsang’s writings (dated late seventh to early eighth
century) give a detailed description of the plan of cities, construction of houses,
and an account of common products of India and data on the area of kingdoms and
the distances between them. During the Moghul period, evidence and application
of statistical knowledge was prominent in Ain-i-Akbari by Abul Fazal.
Documentary evidence includes the system of legalised measurements, land classification
and crop yields by season, etc. The system of land tenure and land revenue, followed
during the Moghul period, had enough empirical basis. The
statistical system was strengthened during the British period. During
this period, the statistical development was geared towards administration, tax
collection, revenue, trade and commerce and related activities as might be expected.
With a view to rationalize and establish a sound system of revenue collection,
the East India Company in 1807 emphasized the need of a statistical
survey of the country. A small department of statistics was founded in the India
House in 1847. In 1848, the first census relating to the area
and revenue of each in North-West Provinces was released. In 1853, the
department released the first series of statistical papers on India. Impressed
by the trend in statistical activities, the Secretary of State ordered the Governor-General
in Council to prepare a ‘comprehensive and coordinated scheme of statistical
survey’ for each of the twelve great provinces of the then British India
and Dr. W.W. Hunter was appointed as Director-General of Statistics
in India in 1869, who can perhaps be regarded as the original precursor to the
Chief Statistician of India today. The Statistical Account of
Bengal (the present Bangladesh, West Bengal, Bihar and Orissa) was published in
20 volumes. For each district there were details on topographical data, ethnic
pisions and creeds, agricultural situation, commerce, working of district administration
and finally the sanitary and health aspects. Although censuses of Calcutta were
undertaken in the year 1822 and in 1847, the operation of a decennial census for
the whole country started in 1881 and is continuing ever since.
The report on the Census of British India taken in 1881 was published
in three volumes. The need for timely and accurate collection of agricultural
data was felt by the Indian Famine Commission and agricultural departments were
organised in various provinces which resulted in the publication of ‘Agricultural
Statistics of British India’ in 1886. To scrutinise and summarise the data
collected by the agricultural departments, a statistical Bureau was formed at
the centre in 1895 to coordinate the agricultural, foreign trade, prices, wages
and industrial statistics. During 1905, a separate body Directorate General of
Commercial Intelligence and Statistics (DGCI & S) was constituted to collect/publish
commercial and trade statistics and to help trade and business. The first issue
of Indian Trade Journal was released in 1906 and first price statistics based
on a survey was released in 1910. The Economic Enquiry Committee set up in 1925
under the Chairmanship of Dr. Visweswarayya and more importantly the Bowley-Robertson
Committee set up later in 1934, were mainly responsible for the government’s
decision to set up an Inter-Departmental Committee with the Economic Adviser to
the Government of India as the chairman. The Inter-Departmental Committee recommended
the formation of a Central Statistical Office for coordination, institution of
a statistical cadre, establishment of State Bureaus at State Head Quarters and
maintenance of important statistics for the entire country. Architect
of Modern Statistical Methods in the Indian Subcontinent The
developments in statistics that took place between 1930 and 1960 are quite remarkable
and in some sense unique. No other discipline in India recorded such growth and
development during the same period in India. There were several important ingredients.
In statistics, unlike other disciplines, India was not a late starter. Indeed,
much of the development even in the United States came later. Only Britain had
started earlier. This helped creation of an Indian school of statistics with its
own mix of theory and applications. The architect of modern statistical methods
in the Indian subcontinent was undoubtedly Professor Prasanta Chandra Mahalanobis.
He was helped by a very distinguished group of scientists that
included R.C. Bose, S.N. Roy C.R. Rao, S.S. Bose, K.R. Nair, D.B. Lahiri and many
others. There were others like P.V. Sukhatme, and V.G. Panse who worked independently
of Mahalanobis. The history of statistics is basically a history of some of these
persons as well as a history of institutions and interactions between persons
and institutions. The institute around which all these development took place
is none other than the Indian Statistical Institute (ISI), Calcutta. Looking back
at the history, one observed that 1950s was inarguably the golden period of ISI.
Besides, Prof. Mahalanobis and C. R. Rao, the faculty of ISI included R.R. Bahadur,
D. Basu, G. Kallianpur, D.B. Lahiri, M. Mukherjee, R. Mukherjee and many other
distinguished luminaries. Some of them studied abroad and subsequently joined
ISI as a faculty. D. Basu joined the ISI as a student and later became a Professor
as well as the first Dean of Studies. D. B. Lahiri was a self-taught mathematician,
contributed significantly on sample survey methods. Between them Rao, Bahadur,
Basu and Kallianpur and a new group of brilliant students including K.R. Parthasarathy,
R. Ranga Rao, V.S. Varadarajan, S.R.S. Varadhan made fundamental contributions
to probability and classical inference during this period which were as important
as the earlier contributions of Bose and Roy to design of experiments and multivariate
analysis. Among the other earlier students of the Institute who achieved international
reputation are G.P. Patil, T.N.Srinivasan, R.G. Laha, J. Roy, Sujit Kumar Mitra,
D.K. Roy Choudhury, and others. I may also mention that S.R.S. Varadhan, currently
a professor of mathematics at New York University and only Indian ever, won the
prestigious Abel prize (which is perhaps equivalent to a Nobel Prize) in mathematics
this year. Professor P. C. Mahalanobis and Statistics
As the Statistics Day is being celebrated in honour of the birth anniversary
of (late) Professor Prasanta Chandra Mahalanobis, I thought a brief sketch of
his life will be appropriate at this juncture. Born on June 29 1893 in a well-to-do
progressive Brahmo family, he passed away on June 28, 1972. He graduated in physics
from Presidency College, Kolkata and went on to study in Cambridge in 1913 and
in 1915 finished his Tripos in Natural Science with a first class. His first encounter
with Statistics was also a chance-event, when his tutor Macaulay drew his attention
to some bound volumes of Biometrika. He got so interested that he bought
a complete set of Biometrika volumes towards his journey back to India.
Mahalanobis set up the Statistical Laboratory in the Presidency College sometime
in the 1920s. His contribution to statistics is enormous. During the 1920s and
until the mid-1930s, all or nearly all the statistical work done in India, was
done single-handedly by Mahalanobis. The early statistical studies included analyses
of data on stature of Anglo-Indians, meteorological data, rainfall data, data
on soil conditions, etc. Some of the findings of these early studies were of great
impact in the control of floods, development of agriculture, etc., and led to
the recognition of Statistics as a key discipline. His passion and conviction
was truly guided for the solutions of applied problems. His further work on anthropological
data resulted in new methodology for classifying or distinguishing populations
characterized by such measurements called Mahalonobis D-square.Another very important
initiative undertaken by Professor Mahalonobis was the initiation of Crop Cutting
Surveys to estimate agricultural production in India, which was a novel idea of
that time. These surveys have continued till today and continue to be important
in the estimation of agricultural production. The Indian
Statistical Institute was founded in a small room in the Presidency College as
a society on 17 December, 1931. Sankhya, the Indian Journal of Statistics,
was founded two years later. Mahalanobis' influence was so ubiquitous that even
students of Physics began to take interest in statistics. Later, several
talented young scholars joined to form an active group of statisticians. Mahalanobis
continued to be the nucleus. Theoretical research in Statistics began to flourish
in all the areas of statistics including design of experiments, statistical quality
control, operations research, etc. Research on large scale sample surveys won
Mahalanobis a Fellowship of the Royal Society. Design and analysis of agricultural
experiments also bloomed and led to some international contacts, notably with
Sir Ronald A. Fisher. At the request of the Government of India, a draft of the
second Five Year Plan was prepared at the Indian Statistical Institute in 1954
by Mahalanobis. The second plan pattern of industrial investment, with its marked
shift in favour of capital good industries, was deeply influenced by the two-sector
growth model developed by Mahalanobis. The substantial contributions of the Institute
to theoretical and applied work, its training and promotional activities culminated
in recognition by the Government of India. The Parliament passed
the Indian Statistical Institute Act, 1959 which declared the Institute as an
“Institution of National Importance” and empowered it to award degrees
and diplomas in Statistics. The first computer of the country was installed in
ISI in 1960. Subsequently, ISI made significant contributions to the development
of advanced numerical algorithms. Mahalanobis’ mastery over empirics was
exemplary as illustrated in using the method of fractal graphical analysis of
consumption data, which was published in Econometrica (1960). It is also
understood that the concept of interpenetrative sub-sampling and pilot survey,
pioneered by Mahalanobis, essentially form the basis of sequential analysis and
modern bootstrap methods. Evolution of the Statistical System
after Independence After independence in 1947, the country saw
an urgent need for a statistical framework suitable for economic and social development.
Mahalanobis was appointed as an Honorary Statistical Adviser in 1949 to the Government
of India and Central Statistical Unit was setup under his technical guidance which
was later named as Central Statistical Organization (CSO) in 1951.This organization
was setup mainly to coordinate the statistical work done in various ministries
and other government agencies and to advise them, to maintain standards with regard
to definitions, concepts and procedures, to provide consultancy, to liaison with
international statistical organizations, to prepare and publish a Monthly Statistical
abstract and an Annual Statistical Abstract and to inform annual statistical information
to public. In India, prior to 1947, the estimation of national income was attempted
by individual economists and scholars for specific years. Among these, the most
systematic work was that of V.K.R.V. Rao in his book National Income in British
India 1931-32 (London; MacMillan 1940), which formed the basis of national
income estimation in the post-independence period. In 1949, the Government of
India formed the National Income Committee (NIC) under the Chairmanship of P.C.
Mahalanobis, with V.K.R.V. Rao and D.R. Gadgil as members. From then onwards the
national income estimation has been steadily strengthened. NIC recommended the
holding of an annual conference on national income and wealth. The First Indian
Conference on Research in National Income was organised by the Central Statistical
Organisation (CSO) in early 1957. In 1964, this conference was converted into
the Indian Association for Research in National Income and Wealth (IARNIW). Dr.
V.K.R.V Rao was the first President of IARNIW. He is credited with the building
of IARNIW as an independent research body under the aegis of the Central Statistical
Organization. In order to improve the quality and fill up the gaps in
statistical information, it was decided to establish a National Sample Survey
Organisation (NSSO). This organization had four pisions: Survey design and research,
Field operations, Data processing, and Economic Analysis. The national sample
survey (NSS) is the largest multi-purpose socio-economic survey. The
coverage and scope of data collection and dissemination of CSO has increased manifold
in recent times. Its current activities include National Income Accounting, conduct
of Annual Survey of Industries, Economic Censuses and its follow up surveys, compilation
of Index of Industrial Production, as well as Consumer Price Indices for Urban
Non-Manual Employees, Human Development Statistics, Gender Statistics, imparting
training in Official Statistics, Five Year Plan work relating to Development of
Statistics in the States and Union Territories; dissemination of statistical information,
work relating to trade, energy, construction, and environment statistics, revision
of National Industrial Classification, etc. The National Statistical
Commission (NSC) set up by the Government in January 2000 under the Chairmanship
of Dr. C. Rangarajan reviewed the statistical system and the entire gamut of Official
Statistics in the country. Core functions of NSC, inter alia, include identification
the core statistics which are of national importance and are critical to the development
of the economy, to evolve national policies and priorities relating to the statistical
system and to evolve standard statistical concepts, definitions, classifications
and methodologies in different areas in statistics and lay down national quality
standards on core statistics. One of the key recommendations of this Commission
was to establish a permanent National Commission on Statistics to serve as a nodal
and empowered body for all core statistical activities of the country, evolve,
monitor and enforce statistical priorities and standards and to ensure statistical
co-ordination among the different agencies involved. In line with the above recommendations,
the Government of India ordered the setting up of a permanent National Statistical
Commission (NSC) on 1st June 2005. The present setup of NSC is a type of umbrella
organization covering both CSO and NSSO. National Statistical
System and the Role of the Reserve Bank Reserve Bank of India
(RBI) collects and analyses statistics on various economic transactions of banking
and other financial institutions in the process of implementing its policies towards
achieving its implicit twin objectives of growth and price stability. A major
part of the statistics in RBI is collected through either statutory or control
returns, which are exclusively used for monetary policy and supervision. In the
field of information generation and analysis we adhere to international standards
and practices. To collect supplementary statistics, RBI conducts surveys in the
fields of credit to rural/urban households, industrial outlook, inflation expectations,
different aspects of banking sector, external sector and the private corporate
sector. At present, the surveys conducted by RBI can be broadly classified
into five categories: (a) external sector including
(1) survey of foreign liabilities and assets for corporate, insurance & mutual
fund sectors, (2) coordinated portfolio investment survey, (3) survey on software
export, (4) unclassified receipt survey used for BoP, (5) survey on balances in
Nostro / Vostro account used in BoP, and (6) survey on non-resident deposits;
(b) banking sector including (1) survey on distribution
of credit, deposits and employment in banks, (2) survey on composition and ownership
of deposits with scheduled commercial banks, (3) survey on investment portfolio
of scheduled commercial banks, (4) survey of debits to deposit accounts with scheduled
commercial banks, (5) survey on international assets and liabilities of banks
and (6) survey of small borrowal accounts; (c) corporate sector
including survey of performance of private corporate business sector, conducted
since 1951-52; (d) monetary policy including (1) industrial
outlook Survey, (2) inflation expectation survey for households and (3) survey
of inventories, order books and capacity utilization; (e) ad
hoc: Census of non-banking financial companies not accepting public deposits. In
addition to the abovementioned surveys, recently RBI has initiated steps to make
use of survey methods for various operational purposes,
e.g., to assess the extent of success and realities of implementation
of financial inclusion. You may be aware that in India, Government as well as
the central bank attach enormous importance towards financial empowerment of the
rural poor and RBI has taken steps for financial inclusion and spread of Self
Help Groups. In support of monetary policy, we propose to introduce survey of
professional forecasters, as done in most of the central banks in developed countries.
In addition, it may be necessary to collect necessary information for compiling
housing starts, in view of the increasing importance of housing
construction in the economy. However, in view of the current state
of data availability with local authorities, this will need considerable additional
work before any significant progress can be made. Other Central Banks conduct
a number of other surveys, both ad hoc and regular ones, in order to help more
informed monetary policy meeting, and other needs as they arise. As we improve
the technical basis of our monetary policy apparatus we will need to keep innovating
in this area. Traditionally RBI is directly involved
in national accounts compilation, especially in savings estimation and flow of
fund compilation. Basic information on household and corporate savings is provided
to CSO for preparing the final estimates. Besides, data on output of banking system
in GDP is imputed from the data supplied by us. RBI also has a long tradition
of conducting important surveys in collaboration of NSSO. The first comprehensive
survey conducted by RBI is known as All-India Rural Credit Survey, with 1951-52
as the reference period. The objective of the survey was to collect such data/information
as would assist the 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 organized and unorganized sectors.
Findings of this landmark survey subsequently changed the entire landscape of
Indian banking and culminated in introducing the world’s biggest social
banking experiments in the form of rural credit and priority sector lending. Such
All-India surveys were conducted decennially and the latest survey pertained to
the year 2002-03. While the 1951-52 and 1961-62 surveys covered only rural households,
the subsequent surveys covered urban households also. The surveys of 1971-72 and
1981-82 were conducted jointly with NSSO, Government of India, whereas those of
1991-92 onwards were conducted entirely by NSSO. The other area, which
has direct consequence with RBI activities, relates to measurement of output and
price. As member of the Technical Advisory Committee of National Accounts Statistics
(NAS), Statistics on Prices and Cost of Living (SPCL), revision of WPI and CPI
series, etc., RBI has been playing a critical role. Let me highlight a few recent
initiatives. The procedure of converting current price estimate into constant
price followed earlier, especially for estimating the output of financial sector,
resulted in some kind of anomalies. In some cases, while estimate at current price
was negative, constant price estimate was positive and increasing. However, in
the last GDP revision (1999-00 series), this problem was corrected after a series
academic discussion with CSO. Similarly, treatment of some of the financial intermediaries
like mutual funds was not defined clearly in SNA 1993. And treating mutual funds
similar to banks was conceptually not correct. Recently, CSO set up a committee
in RBI to look into this matter and the recommendations of the committee has been
accepted by TAC of NAS. Besides, RBI is also working in close collaboration with
CSO for implementing the ensuing changes of SNA revision due this year.
Let me cite an example of RBI’s recent involvement in price measurement
issues. The need for integration CPIs is nothing new. The National Statistical
Commission (2001) recommended, inter alia, that the current CPIs do not
provide changes in the prices for the entire rural and urban population since
they are designed to measure the changes in the prices of goods and services consumed
by specific segments of the population and hence there is a need to compile the
CPI separately for the entire rural and urban population. In this context, a Sub-Group
set-up in RBI, recommended the compilation of separate CPIs for whole rural and
urban population and provided a roadmap for compilation. I happy to note that
TAC on SPCL has finally accepted this and shortly we shall have CPI(U) and CPI(R).
Needless to mention that these price indices will be very useful for monetary
policy purposes. Application of Statistical
Methods in RBI: Need for Further Work Before I conclude, let
me outline a few areas of work in RBI where statisticians can contribute significantly.
First, as monetary policy formulation largely depends on the forward-looking behaviour
of the economy, the use of forecasting techniques automatically comes in the forefront.
While traditional time series techniques are useful, we need to build up expertise
on forecasting using calibrated models. Such models have definitive advantage
of incorporating economic agents utility, requires less data and can be maneuvered
easily with different alternatives. Second, RBI incurs a huge expenditure on management
of currency through out the country. Operations research techniques could be utilized
effectively in the areas of inventory, transportation, etc., so as to develop
an efficient and cost effective currency management systems. Third, risk analysis
under a statistical framework is a pre-requisite for implementing Basel II norms.
Fourth, innovative sample surveys in the area of financial inclusion, development
of leading indicators like house-start index, inflation expectation, etc., could
be very useful tools. Fifth, we do not have an appropriate measure of potential
output. It is not an easy task; however, efforts should be made to devise a suitable
methodology for estimating potential output at the earliest. Finally,
let me conclude by saying that knowledge building is an ongoing activity. Frontiers
are shifting upwards consistently and thus demanding a persistent catching up
with the advanced knowledge. Central banking today is more challenging than ever
and accurate information is the key to supplement policy decisions. I hope the
Statistics Day and the conference on financial statistics pave the platform of
knowledge sharing and understanding of advanced frontiers. Inaugural
address by Dr. Rakesh Mohan, Deputy Governor, Reserve Bank of India on the Statistics
Day and Annual Conference on Financial Statistics, on June 29, 2007 at Department
of Statistical Analysis and Computer Services, Reserve Bank of India, Mumbai.
Assistance of A K Ray and Abhiman Das in preparing the speech is gratefully acknowledged. It
is also believed that the seed of computer and IT revolution in India was germinated
in ISI. The editor of Econometrica published a shorter version of
this paper what reportedly Mahalanobis did not like. As a result, he again published
the full version of the paper in Sankhya. |