The Hindu Business Line : New wholesale price index series to be introduced

The Working Group, under the Chairmanship of Prof Abhijit Sen of the Jawaharlal Nehru University for the revision of the current series of WPI, is expected to submit its report to the Government by December, according to official sources.

Besides recommending a new base year, "which could be either 1999-2000, 2000-01 or 2001-02", and assigning new weights to individual commodities whose weekly price movements are reckoned while computing the WPI, the working group will also examine certain analytical issues in order to "introduce the best international practices in price index compilation".

The sources pointed out that India was probably one of the few countries that used the WPI as the headline indicator for measuring inflation. In most advanced countries, the headline inflation measure used was the consumer price index or CPI covering all goods entering the final consumption basket and excluding intermediate or investment goods.

"We do have CPIs here, but these correspond to different consumer segments, namely industrial workers, agricultural labourers and urban non-manual employees. There is no single headline consumer price index, which we find in other countries," they noted.

In addition to the CPI, other countries also release headline inflation data based on the producer price index (PPI), which pertain to prices at point of first sale, i.e., farmgate prices or ex-factory realisations.

"The WPI, on the other hand, is a hotchpotch because it is neither a CPI nor a PPI," the sources said. According to the Office of the Economic Adviser in the Ministry of Industry, which compiles the WPI, wholesale prices represent transactions at the primary stage broadly corresponding to producers' prices. In actual practice, however, the primary sales are not always held ex-farm, ex-mines or ex-factory. Sometimes the sales are held ex-warehouses, in which case the price quotations may include an element of the cost of transportation from the farm, mine or factory to the warehouse. Similarly, the prices of say, wheat prevailing in Khanna would obviously be a more authentic indicator of producer price than that prevailing in the Mumbai or Kolkata markets.

"The working group would look into these issues, including the feasibility of compiling and releasing time-series data on CPI and PPI in line with best international practices," the sources said. They, however, admitted that the task would not be easy, as consumer prices would have to incorporate prices of services as well, for which there is no proper data sources. Similarly, the proposed PPI would have to take into account seasonal changes in marketing of commodities. For instance, farmers bring bulk of their wheat to the mandis during April-May, which means the PPI for these months will have to assign a higher weight for wheat, while have a lower or nil weight in November or December.

The existing WPI series with 1993-94 as the base year was introduced with effect from April 1, 2000, replacing the earlier 1981-82 base year series that came into existence from July 1989. Apart from replacing the base year, the new series also incorporated a new weighting diagram to capture the changed economic and commodity trading scenario.

While the weightage for `primary articles' was brought down from 32.30 to 22.02 per cent, those for `fuel, power light & lubricants' and `manufactured products' were increased from 10.66 to 14.23 per cent and from 57.04 to 63.75 per cent, respectively.

Within `primary articles', foodgrains and fruits & vegetables were assigned lower weights, while being raised for milk and eggs, meat & fish. Similarly, the weightage for man-made textiles was increased at the expense of cotton textiles, with chemicals, cement, iron & steel and motor vehicles being assigned higher weights.