New Delhi: Although a committee would have by the end of this week cleared the decks for a new consumer price index to replace the Wholesale Price Index, or WPI, which constantly understates inflation, the government is unlikely to launch it as it is still unsure how to source the data.
The new index, to be called the producer price index, or PPI, will have 2004-05 as its base year, and cover over 2,000 items, with a higher share of manufactured articles, against the 435-item WPI.
Bottleneck: A scene at a grains market in Haryana. Getting timely price data of various commodities is one of the biggest problems. (Photo: Ramesh Pathania/ Mint)
Planning Commission member and chairman of the PPI working group Abhijit Sen said, “I’m looking to submit the report this week,” before adding, “I understand the sourcing of data remains a problem. Without a steady flow of price data, the index cannot be launched.”
The Sen committee included representatives from the department of industrial promotion and policy, or DIPP, the nodal agency responsible for collecting price data from manufacturers, the Central Statistical Organisation, or CSO, that computes the index, and other government agencies such as the Reserve Bank of India. The committee’s extended term expired on 31 March.
However, a senior DIPP official, who didn’t want to be identified, said, “The data problems have been sorted out. We expect to start running a model index in mid-May or so.” According to the official, the CSO would arrange for old data, a fact that has been denied by the CSO.
“Our job concerns the computation of the index. The data is the DIPP’s responsibility,” said Ramesh Kolli, additional director general of CSO.
Industries submit price data voluntarily for the WPI, and there are no penalties for delay or failure to submit the data. This, as a result, has affected data flow, often hurting the credibility of the WPI.
Further, with India transforming itself into becoming a trillion-dollar economy, the WPI, which uses a base year of 1993-94, is believed to be no longer representative.
In fact, analysts have attributed this as the reason behind the growing gap between the provisional and final indices. For instance, for the week ended 2 February, the final inflation at 4.74% was more than 16% higher than the provisional figure of 4.07%. The provisional indices are released with a two-week lag, while the final figures are released after a gap of 10 weeks.
Mint had reported on 22 December that the government was working on a PPI.
This was first proposed in the country’s Economic Survey of 2004-05, that led to the Sen committee being set up. Among the prominent countries that use the system is the US, which switched to a PPI from WPI in 1978.
PPI is considered to be a better measure of inflation as it captures factory prices, excluding taxes, transport costs and trade margins. By tracking the difference between the inflation based on retail prices, measured by the various consumer price indices, the government will be better able to track inflationary causes—for instance, whether it is because of increase in producer prices triggered by increased input costs such as fuel or because of speculative trade.
Such speculation could be happening now, Sen said, as prices of most commodities, especially grains, are far lower in India than in rest of the world.
Getting price data on time from manufacturers is the biggest roadblock in the way of the new PPI, said National Statistical Commission chairman Suresh Tendulkar. “We need a whole new set of prices for 2004-05 and that is not easy to get.”
“The DIPP is aware of the problems. Even we are aware of the broad recommendations. The collection mechanisms have to be set up in the DIPP. But we still don’t have a concrete way out,” Tendulkar added.
The Sen committee has also suggested using the National Sample Survey Organisation, or NSSO, data for 2004-05 but Tendulkar said that any weekly price collection by either NSSO or CSO was problematic as the departments didn’t have sufficient staff.
The committee has also suggested an option of switching to a monthly, rather than weekly, system. It even explored the possibility of outsourcing the work to a private agency. However, DIPP, which was using the Mumbai-based think tank Centre for Monitoring Indian Economy, or CMIE, as the data provider for the industrial production index, has not renewed the contract after it expired in 2007.
The problem with India’s official statistical machinery is that “it relies too much on the administrative machinery,” said CMIE managing director and chief executive officer Mahesh Vyas.
“With economic reforms, the role and the power of this machinery is on the wane. So, India now needs a professional independent statistical body, which will look at everything related to data and its collection.”