New Series WPI, IIP Released With 2011-12 Base Year; 199 New Items In WPI Basket

Recall the days when fruits like mousambi, pomegranate or pear and vegetables like radish carrot or jack fruit would cost steeply more than the past but the government's statistics would rub salt in the wounds and say no inflation. All is well?

There are no guarantees that Prices won't rise but government has now tweaked the way in which wholesale price inflation is calculated. If prices of such items in the vegetable market rise the inflation figure will depict it. And the government would have to act not just issue denials.

In economic terms the government has changed base year for calculating macroeconomic indicators which it hopes will provide more realistic picture of the economy and reflect more accurate market realities. The base year for wholesale price index (WPI)-based inflation and the Index of Industrial Production (IIP) is now 2011-12 from 2004-05. It also added items which are consumed more and deleted those which are not consumers' favourites

The government on Friday evening also unveiled the new series of wholesale inflation and industrial output data - Inflation based on the wholesale price index (WPI) slipped to a four-month low of 3.85 per cent in April as both food articles and manufactured items showed cooling in prices, whereas industrial output growth slipped to 2.7 per cent in March, due to poor run by the manufacturing sector. The index of industrial production (IIP) growth was 5.5 per cent in March 2016.

Retail inflation also fell sharply to 2.99 per cent in April, from 3.89 per cent in March, as cost of food items fell. This includes pulses and vegetables. The consumer price index (CPI) based retail inflation for March 2017 was revised slightly upwards to 3.89 per cent, from 3.81 per cent earlier.

This is not the first base year change. But the 7th such revision comes at a time when the government has been under tremendous pressure to get more realistic in generating data and deciding the indicators for more targeted policy interventions.

For getting a more accurate picture on the wholesale price inflation front the number of items has been increased from 676 to 697. In all, 199 new items have been added and 146 old items have been dropped. Several items which are no more the staples on the dining table like papadum won't be part of the inflation calculation. With a major review of manufactured products Nearly 173 new items like tissue paper, conveyor belt and wooden splint have been added, while 135 items like khandsari and VCD players have been dropped.

Also the old calculators didn't take into account prices of fruits and vegetables for long duration of 'off season' period. Since vegetables and fruits are available for longer durations. So the off season period has been cut short. The new series is more representative with increase in number of quotations from 5,482 to 8,331.

Interestingly the tweak alters the macroeconomic picture to a certain extent. With the base year change the Index for industrial production - the final growth picture looks rosier. (See table below)

IIP picture

Base year  2004-05  2011-12

(Fiscal year)

2014-15    2.8 %      4 %

2014-16    2.4 %      3.4 %

2016-17    2.7 %      5 %

With the base year and other changes introduced the industrial growth for the last three fiscal 'technically' touches 5 per cent. The NDA Government 15 days away from 3 years in power will take credit for that. The government would have a stronger counter against the oppositions question that how can the GDP growth stay above 7 per cent when the industrial growth rate is low. The revision shortens the gap between industrial growth and GDP figure.

Releasing the data the chief statistical officer TCA Ananth said, "In the new series of WPI, prices used for compilation do not include indirect taxes in order to remove impact of fiscal policy. This is in consonance with international practices and will make the new WPI conceptually closer to 'Producer Price Index'."

Even this is going to insulate the government in future. There are fears that once the goods and services tax kicks in from July the prices of several items may go up. But with indirect taxes out of the computation (as GST is a consumption tax) the real impact may remain blurred.

However Ananth said, "A new 'WPI Food Index' will be compiled to capture the rate of inflation in food items."

The base year for the country's national accounts, including the gross domestic product (GDP) and the gross value addition (GVA) and retail inflation based on the Consumer Price Index (CPI) was tweaked earlier by the Central Statistics Office (CSO) to 2011-12.

Chief Economist at India Ratings Devendra Kumar Pant on the new base year said, "both indices are now measuring inflation and industrial production with reference to a closer time and closer to real situation. But there are problems. The IIP data generated does not include the informal sector. Only the organised sector is considered. And even there the data is not accurate or adequate."

Experts feel the informal sector is facing a huge crisis currently where there has been deceleration and large scale retrenchment.

"The gap in the base year and current data and exclusions are a major problem. Data has to be current for real time interventions from the government." Pant said.