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Impressions on LSM rebasing

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January 23, 2022 (MLN): Finally, the Pakistan Bureau of Statistics (PBS) has rebased the Large-Scale Manufacturing Index (LSMI) after a gap of more than a decade. At first look, it seems that the PBS has done a great job at making the index more indicative of the current production trends in the country.

2015-16 rebasing now represents 22 categories – in-line with the International Standard Industrial Classification (ISIC) – compared to just 15 in the 2005-06 base. This had been a long-standing issue by various experts who argued that the 2005-06 base failed to present an accurate picture of the country’s industrial sector. The LSM numbers as per the 2015-16 base will likely be reported from January 2022 (no official announcement yet) onwards since Nov’ 21 data – reported after rebasing announcement – still used 2005-06 base.

Under the revision, the weight assigned to items reported through the Provincial Bureaus of Statistics (PBoS) has been doubled from 15.36% to 31.17% through the addition of new items: bakery products, chocolate & sugar confectionery; rice milling; mineral waters; preserved milk; towels; garments; corrugated paper/paperboard containers; pesticides; insulated wire and cable; parts and accessories for motor vehicles; and furniture. Overall, the number of items reported under the PBoS has been increased from 65 to 76. Some of these items i.e., garments, towels and furniture have been included as new categories whereas others have been added to existing ones.

Meanwhile, the weight for the Oil Companies’ Advisory Council (OCAC) has also been increased from 5.51% to 6.66% through an increase in weights assigned to different petroleum products. On the flipside, downward adjustments have been made to the weights for the Ministry of Industries and Predication (MoIP) from 49.55% to 40.54%. All in all, the LSMI now represents 123 items with a weight of 78.37% compared to 112 items with 70.33%.

After accounting for key changes, the LSMI still fails to deliver an accurate picture of the country’s industrial sector and the reporting methodology also warrants attention.

Take automobile production as an example, the PBS depends upon the Pakistan Automotive Manufacturers’ Association (PAMA) to submit monthly data. Although the majority of the automobile assemblers are a part of PAMA, production data from new firms such as Lucky Kia Motors, Al-Haj Proton, JW Forland and MG JW are still not part of the LSMI. Beyond the automobiles, the majority of motorcycle assemblers have also been ignored in the rebasing.

Another important sector missing from the LSMI is that of cell phone production which has been outright ignored from the index. Granted that the mobile production has picked up pace only after 2015-16 rebasing, but its contribution in the national accounts cannot be ignored. The PBS, with its large team, could have easily made additions of these two sectors to the 2015-16 base. Some experts estimate that by adding cell phone manufacturing to the LSMI, the overall GDP growth for FY21 could have clocked in at above 6%. During the calendar year 2020, an estimated 25m cell phone units were manufactured in the country but their contribution to the GDP is yet to be accounted.

Another issue with the LSMI is that of how the production data is collected and reported. Firstly, the PBS relies solely upon the corresponding industries to voluntarily submit production data. Experts fear that the production companies may be underreporting production data to avoid taxes. Meanwhile, apparently, the PBS also does not cross-check data through correlations with the usage of inputs such as electricity, gas consumption etc to verify their numbers. The PBS relies upon OCAC for data on refineries, oil marketing companies and pipeline companies, which are oftentimes different from primary sources.

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Posted on: 2022-01-23T15:46:25+05:00