Data Revisions in India and its Implications for Monetary Policy

This paper studies data revision properties of GDP growth and inflation as measured by the Wholesale Price Index (WPI) for the Indian economy. We find that data revisions to GDP growth and WPI inflation in India are significant. The results show that revisions to GDP growth and WPI inflation can not be characterized as either containing pure news or pure noise. We also find that there is a significant predictable component in revisions to GDP growth and inflation. Our findings suggest that if the Reserve Bank of India were to follow a Taylor rule for its monetary policy formulation, then the interest rate based on the preliminary data would be much lower than the one based on the fully revised data.