New Delhi: From January, India’s inflation data will become more accurate, thereby improving the quality of regulatory response to it.
That’s because a key decision-making body of the Indian government has approved a proposal to release Wholesale Price Index (WPI)-based inflation data once a month from the current frequency of once a week, taking it just a step away from being implemented.
The data will likely be more representative also because it will cover almost twice as many items as current data.
“A monthly index may help in reducing the errors in the WPI. However, the government should continue publishing the weekly WPI data as it is an important variable for monetary and fiscal policymaking,” said N.R. Bhanumurthy, associate professor at economic think tank, the Institute of Economic Growth.
The proposal now needs clearance from the cabinet committee on prices, a group of ministers who look at issues related to prices of essential commodities, before it can be implemented.
“We have received clearance from the committee of secretaries (CoS, a key decision-making body comprising top bureaucrats). Now the proposal will be put before the cabinet committee on prices for final approval,” said a senior official at the department of industrial policy and promotion, or DIPP, the arm of the country’s ministry of commerce that collects data on which WPI is based.
Currently, the government releases provisional WPI-based inflation data with a lag of 10 days, and final data, with a lag of eight weeks. For instance, on Thursday, it released provisional data for the week ended 18 October (10.68%) and final data for the week ended 23 October (12.76%). There is usually a small but significant gap between provisional data and final data: the provisional inflation for the week for which final data has just been released was 12.34%.
The discrepancy is on account of inadequate data. DIPP typically receives data on prices of only around one-fifth of the manufactured products that are included in the index.
Of the 435 products in the index at present, 318 are manufactured products, 98 are primary articles such as food grains and oil seeds, and 19 are fuel group items.
The proposal regarding a monthly release was made by DIPP but initially opposed by the country’s finance ministry and the Reserve Bank of India which react to this data if there’s need to. The finance ministry has since agreed to the proposal but wants DIPP to continue publishing weekly inflation data for agricultural commodities and fuel as a separate index.
“We have agreed to the finance ministry’s proposal and an index comprising fuel items and agricultural commodities will be published every week,” added the DIPP official, who did not want to be named.
While the committee of secretaries, which met on 15 October, asked for the data to be published every 15 days, DIPP said it would start with a monthly release and move to a fortnightly one should it be able to gather sufficient data.
India’s finance minister P. Chidambaram has asked DIPP to start its monthly data releases from January, said the DIPP official.
The new frequency and the expanded basket of products covered are both based on recommendations submitted this May by a working group headed by economist Abhijit Sen, a member of India’s apex planning body, the Planning Commission.
The key recommendations suggested a monthly release of inflation data, inclusion of more products, and a change in the base year from 1993-94 to 2004-05, thereby making the data more representative.
While the group had suggested increasing the number of products covered to 1,224, the DIPP official said that this might not be possible. “Even when work for the current series started, the target was to include 800 items.”
India’s chief statistician Pronab Sen is looking to gather data on 1,150 products.
“I have told DIPP that once we start getting data for at least 60% of the items, we can announce the launch of the new series. We also need at least data from 5,000 out of the 8,000 reporting units,” Sen added.
The data is gathered by DIPP from so-called reporting units, which are source units producing the commodities.
India is one of the few countries which publish WPI-based inflation on a weekly basis. Most other countries in the world publish monthly headline inflation data based on the consumer price index. Since India does not have an integrated consumer price index, it relies on WPI data. It publishes three monthly consumer price indices, for various population segments, with a two-month lag.