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Every economy calculates its inflation for efficient financial administration as the multi-dimensional effects of inflation make it necessary. India calculates its inflation on two price indices, i.e., the wholesale price index (WPI) and the consumer price index (CPI). While the WPI-inflation is used at the macro-level policymaking, the CPI-inflation is used for micro-level analyses.
The inflation at the WPI is the inflation of the economy. Both the indices follow the ‘point-to-point’ method and may be shown in points (i.e., digit) as well as in percentage relative to a particular base year.
The first index number of wholesale prices commenced in India for the week January 10, 1942. It was having the base week ending August 19, 1939 = 100, which was published by the office of the Economic Adviser to the Government of India (Ministry of Industry).40 Independent India followed the same series with more number of commodities included in the index. Several changes regarding inclusion of commodities, assigning them the logical weights took place in the coming times including revisions in the base years for the WPI. The WPI base year has been revised five times till date. The base years are as given below:
(i) 1952–53 Base Year (112 Commodities) issued from June 1952.
(ii) 1961–62 Base Year (139 Commodities) issued from July 1969.
(iii) 1970–71 Base Year (360 Commodities) issued from January 1977.
(iv) 1981–82 Base Year (447 Commodities) issued from January 1989.
(v) 1993–94 Base Year (435 Commodities) issued from July, 1999.
(vi) 2004–05 Base Year (676 Commodities) released in September 2011.
With the purpose of making inflation data in India more transparent, updated and similar to the practices among most of the economies, a Working Group for Revision of WPI Number was set up under the Chairmanship of the Planning Commission member, Prof. Abhijit Sen. In light of the recommendations the government recently announced the New Series of Wholesale Price Index.
Headline inflation in India is measured in terms of Wholesale Price Index (WPI) and the Office of the Economic Adviser, Department of Industrial Policy & Promotion is entrusted with the task of releasing this index. WPI is an important statistical indicator, as various policy decisions of the
government, like inflation management, monitoring of prices of essential commodities, etc., are based on it.
It is one of the key variables for monetary policy changes by the Reserve Bank of India. In addition to its role as a policy variable, WPI is also used by various departments for arriving at the escalation costs of various contracts.
Considering the importance of WPI as a tool for various policy decisions, it is necessary to disseminate the most comprehensive, credible and accurate information, reflecting the realities of the present economic situation of the country. In order to capture the structural changes happening in the economy, the base year of WPI needs to be updated.
The Office of the Economic Adviser undertook the work relating to revision of the existing series of WPI (base 1993–94=100), which not only addressed the issue of change in the base year, but also revised the entire commodity basket and the weighting diagram so as to better reflect the price trends in economy. The revised series of WPI was officially launched on September 14, 2010 by the Ministry of Commerce & Industry.
Features of the Revised Series of WPI
A representative commodity basket comprising 676 items has been selected in the new series (base 2004–05=100) as against 435 in the old series (base 1993–94=100) and weighting diagram has been derived for the new series consistent with the structure of the economy. There has been a substantial increase in the number of quotations selected for collecting price data for the above items. The number of price quotations for the new series is 5482 whereas in the old series, it was 1918.
The selection of the base year and the commodity basket was made on the basis of the recommendations of the Working Group set up specifically for this purpose. The Working Group was headed by Professor Abhijit Sen, Member, Planning Commission and included as its members all stakeholders covering the users of the price data and the providers of the prices. The working group in its Technical Reports gave detailed recommendations with regard to the choice of the base year, the method of selection of items, preparation of weighting diagram and the collection of prices. The new index along with the base year and the commodity basket was also examined by the
Technical Advisory Committee (TAC) on Prices and Cost of Living based in Central Statistical Organisation. Before the launch of the new index, inter- departmental consultations were held and opinions obtained from the Economic Advisory Council of the Prime Minister.
A comparative statement of weights, number of items and number of quotations between the old series and new series at Group level is given below:
Major Group / Group | Weight | No. of items | No. of Quotations | |||
2004–05 | 1993–94 | 2004–05 | 1993–94 | 2004–05 | 1993–94 | |
All Commodities | 100.00 | 100.00 | 676 | 435 | 5482 | 1918 |
Primary Articles | 20.12 | 22.02 | 102 | 98 | 579 | 455 |
Fuel & Power | 14.91 | 14.23 | 19 | 19 | 72 | 72 |
Manufactured Products | 64.97 | 63.75 | 555 | 318 | 4831 | 1391 |
Many new items have been included in the new series basket such as flowers, lemon and crude petroleum in Primary Articles and ice cream, canned meat, palm oil, readymade/instant food powder, mineral water, computer stationary, leather products, scooter / motorcycle tyre, polymers, petrochemical intermediates, granites, marbles, gold and silver, construction machinery, refrigerators, computers, dish antenna, transformer, microwave oven, communication equipments (telephone instruments), TV sets, VCD, washing machine and auto parts in Manufactured Products.
Revised Series: New Initiatives
There has been a substantial increase, both in terms of the number of commodities and its geographical coverage, in the revised series of WPI (base 2004–05=100), as compared to the earlier revisions undertaken so far.41 This would, undoubtedly, disseminate the more realistic and reliable data, facilitating better decision making and policy intervention.
The revised series of WPI (base 2004–05=100) has also addressed the issue of flow of regular data. The NIC unit of the Office of the Economic Adviser has developed an online data transmission mechanism, whereby, the manufacturing units can supply price data through the internet. Also, an arrangement has been made with the National Sample Survey Office (Field Operations Division) to get price data on regular basis. These measures have
improved the flow of price data.
The new series of the WPI with the base year 2012 (i.e., 2011–12), which could be compatible to the base year of the new series of the CPI (released February 2015), was to be released by mid-2015. But it is still awaited (Economic Survey 2016–17).
Since November 2009 the WPI data are already being released in the following way:
(i) the first set of data of WPI (for the ‘Manufactured Products’) are released on monthly basis.
(ii) the second set of data of WPI (for the ‘Primary Articles’ and ‘Energy and Fuel Group’) are released on weekly basis.
Other than the WPI, India also calculates inflation at the consumer level, similar to all the economies of the world. As consumers in India show wide differentiation of their choice of consumption, purchasing powers. etc., a single consumer price index (CPI) has not been possible yet which can encompass all the Indian consumers.42
Depending upon the socio-economic differentiations among consumers, India has four differing sets of CPI with some differentials in the basket of commodities allotted to them. Though these four types of CPIs is proposed to be withdrawn in coming times, data for them are still released. A brief account of the four CPIs are as under: