It will be October before India gets a new, updated, and more representative Wholesale Price Index, or WPI, that has been in the works for at least two years.
The index is the most commonly used basis to measure inflation and the delay could be significant at a time when inflation is at a three-year high and more representative, speedy and accurate data could arm the government with more ways to combat the rise in prices.
The Abhijit Sen committee that has been updating the base year of the 14-year-old WPI to 2004-05 and expanding the number of items to 1,200 from 435, will submit a report this week advocating a switch to a weekly sensitive, or essential, commodities index and a monthly all-commodity index, simply because it is virtually impossible to ensure weekly data flows from manufacturing industry.
It will also advocate invoking a new legislation designed last year that gives teeth to the antiquated Collection of Statistics Act, 1953 which empowers data collectors. This is expected to be cleared by Parliament in the monsoon session.
“You simply can’t have a situation where a poor quality weekly price index is driving the stock markets up and down,” says Pronab Sen, chief statistician of India. “Industry and stock markets react instantaneously to these numbers and you simply cannot afford the volatility that this generates.” Worse, the lag in releasing inflation numbers, largely a function of the delay in collecting data, could affect the government’s ability to frame policies to fight the rise in prices. This happened recently in the case of steel, where prices rose in January but the index reflected this only in March.
Weekly data on primary commodities such as agricultural items and minerals is available. In the case of manufactured products, however, data on less than one-fifth is available on a weekly basis. “Such a thin sample makes the data practically useless for policy purposes,” says Abhijit Sen. “Data keeps trickling in but even in the maximum deadline period of eight weeks, only about half the sample size is filled up.”
India announces provisional WPI data with a two-week lag and final data with a two month (or eight-week) lag.
The data on manufactured goods is routed through the department of industrial promotion and policy, or DIPP, in the ministry of commerce and industry—a legacy of the time when all manufacturing activity in the country was licensed and, therefore, regulated by this ministry.
Ideally, the data should come to the ministry of statistics and programme implementation which houses India’s two premier data agencies, the Central Statistical Organisation, or CSO, and the National Sample Survey Organisation, or NSSO.
CSO computes WPI based on the prices sent in by DIPP and a few other ministries.
Manufacturers send in data voluntarily but if they don’t, there’s nothing much DIPP can do in a liberalized policy regime. To avert this problem, data can be collected from manufacturers, but both DIPP and the ministry of statistics claim they do not have enough people to ensure this is done every week.
The amendment to the statistics Act will simplify their job, by imposing really stringent penalties for defaulters as well as those who have furnished wrong data. The Abhijit Sen committee got NSSO involved for the data for the new index but even then, Sen says, “the experience has not been that great. Out of the 5,000 prices that we sought, we got 300.” A letter has now gone out to firms invoking the old statistics Act, which allows a small fine for late submission of data—a desperate measure that will be followed up with visits from NSSO’s field staff.
The committee has, therefore, advocated that a single agency be used to both collect the data and compute the index. It can be either CSO or DIPP, not both.
Apart from considering two indices, one weekly, and the other monthly, Abhijit Sen also wants to review the frequency of releasing the data.
The weekly data can still be provided to the Reserve Bank of India or the ministry of finance, both of which closely monitor inflation, while the rest of India should get WPI data only on a monthly basis, as is the practice almost everywhere in the world. “It will be up to them to release the data to the public if they want. But the data will still have quality problems and the statistical agency should not associate itself with such data,” he adds.
The impact of late data has been visible in the widening gap between provisional and actual inflation rates. For the week ended 1 March, the latest period for which final data is available, actual inflation came to 6.21%, more than 1 pecentage point higher than the provisional figure of 5.11%.
This problem will be partly eliminated with monthly data, where there will be more time to pursue firms (for data), Abhijit Sen said.
“The issue is really a trade-off between frequency and quality.”