New Delhi: The Union government may update the current inflation series with an expanded basket of commodities and a new base year in April, seeking to improve the accuracy and credibility of inflation data.
The new Wholesale Price Index (WPI) series will have 2004-05 as the base year for calculating inflation, instead of 1993-94. It is also expected to have around 700 items in the index, up from 435 now.
An updated inflation series is considered essential as crucial policy decisions by the Reserve Bank of India (RBI) and the finance ministry are based on such price data. RBI relies heavily on the trend in inflation before taking a call on its key policy rates.
The new WPI series was approved by the technical advisory committee under the Central Statistical Organisation, or CSO, on 31 December.
The panel comprises representatives from government arms such as the finance ministry and RBI as well as external experts.
“We have checked the technical robustness of the new WPI series and we have found it to be okay,” said a senior CSO official on condition of anonymity.
An official of the Department of Industrial Policy and Promotion, or Dipp, responsible for releasing inflation data, said the department plans to launch the new index at the start of the next financial year.
“The present 1993-94 series was launched starting April 2000. So we will follow the convention and release the new series starting the new financial year,” said the official, who also asked not to be identified.
Dipp has already changed the frequency of the WPI series to monthly releases from the earlier practice of weekly releases though it continues to provide weekly inflation numbers for sensitive items such as food and fuel.
The change followed cabinet clearance in October, which Dipp officials say will make the release of the new series faster as no fresh Cabinet approval is needed.
The switch to a monthly inflation index and the proposal for a new series were recommended by a working group headed by economist and Planning Commission member Abhijit Sen. Set up in 2005 by Dipp, the group was asked to list a new WPI series as the present one had become outdated.
Apart from the fact that many countries release their inflation data once a month, a monthly WPI series was felt essential because of poor responses from manufacturing units, which weakened the quality of the index. A monthly index, on the other hand, is expected to give Dipp enough time to collect price data.
The Dipp official mentioned earlier said the department had checked the robustness of the new series internally. “The inflation rates under the new series do not vary significantly from the old series except for a few items,” the official said.
Initially, the finance ministry and RBI had opposed the change of frequency, but agreed to the proposal after consultations mediated by the National Statistical Commission, the apex statistical body.
And while Sen’s group had recommended including 1,100 items in the new WPI basket, Dipp has decided to include only about 700 items.
“This is mostly because some items have been clubbed together, and for similar items where enough data is not available, a representative item has been taken in the new series,” the Dipp official said.
The new series may include products such as moisturizers, microwave ovens, washing machines, inverters, fluorescent tubes, dish antennae, video compact disc players, refrigerators and cameras. It has also lowered the weight of several items in the index, such as black and white television sets.