The Hindu Business Line : New WPI index to be less ‘aam aadmi’ centred

New Delhi, Sept. 27 The inflation numbers derived from the proposed new wholesale price index (WPI) series may turn out to be less reflective of the price increases (or decreases) experienced by the aam aadmi.

The reason for this is that the weights assigned to many items relevant to the common man’s consumption basket in the new index (with 2004-05 as base year) is lower than those in the existing 1993-94 base WPI series.

Thus, foodgrains have a weight of only 4.09 per cent in the proposed index against the current 5.01 per cent. Likewise, there are reductions for milk (from 4.37 to 3.24), sugar (3.62 to 1.68), edible oils (2.76 to 2.60), electricity for domestic (0.96 to 0.91) and agricultural (1.95 to 0.85) purposes, drugs & medicines (2.53 to 0.55), fertilisers (2.75 to 3.69) and cement (1.73 to 1.29).

On the other hand, weightages have been revised upwards for eggs, meat, fish and various processed food products (besides wines, liquor, soft drinks and carbonated beverages) that one would assume are consumed more by middle income groups. The weights have also been raised in the case of vegetables (1.46 to 1.74) and even more so for fruits (1.46 to 2.11).

But the most interesting changes are in respect of transport vehicles. The new WPI series gives a total 1.46 per cent weight to cars. In the existing one, there is only a reference to ‘car chasis (assembled)’, having a 0.84 per cent weight. At the same time, the weight for bicycles has been lowered from 0.22 to 0.8 per cent.

The weights for the various commodities in the new WPI have been computed mainly on the basis of their gross output values for 2004-05, as estimated from the Central Statistical Organisation’s (CSO) National Accounts Statistics.

“The weighting diagram reflects the composition of goods transacted in the domestic product. There is no reason to assume that this would correspond to the consumption profile of the aam aadmi because his needs may not translate into spending power,” an official pointed out.

The launch of the new series could have policy implications. For instance, lower weightages for foodgrains, sugar or cement in the WPI will mean that price increases in these will not impact inflation numbers to the extent they do now.

Therefore, the Centre may not be induced to take strong measures such as clamping down on exports, just as the higher weights proposed for diesel and petrol could deter sharp administered price hikes for them.

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