The new index, with 2004-05 as the base year, will have 241 new items- -The mechanism how the need of the new base year & new index lead came under whose proposition & on what basis.

One of the important Terms of Reference of the Working Group relates to

selection of the most appropriate base year for the new series of WPI in India.

Economic Activities are functions of time. To capture 'inter-temporal' changes, a

benchmark year i.e, base year is a must. The base year has considerable

influence, not only on the movement of price relatives of the individual

commodities, but also on the weighting pattern, which would influence the

movement of the Index as a whole. Moreover, most of the important economic

indicators are interactive and inter-related. Proper alignment of the base year

would tend to smoothen the sharp fluctuations in price movements and would

ensure consistency.The new wholesale price-based inflation basket will have as many as 676 products, including LCD TVs, mobile phones, and packaged drinking water among others, and is likely to be rolled out in June or July &. is expected to provide a more realistic picture of price rise and its impact on the common man. Currently there are 435 items in the WPI basket

While the existing system of inflation is accurate, the new series with bigger basket will be more credible as all major products have been included," he said.

The Reserve Bank is the major consumer of the inflation data as it helps them in formulating and monitoring policies.

The wholesale price inflation is at present calculated with 1993-94 as the base year. The government had earlier revised the base year for WPI in 1952-53, 1961-62, 1970-71, 1981-82 and 1993-94.

"The WPI will now become more representative of today's reality. I believe it will come along with the revision in commodities and weights," rating agency Crisil Principal Economist DK Joshi said.

Though Joshi said the WPI will become a better measure, he doubted if the government would include services in the index and said people will have to continue depending on other indices like the consumer price index.

"The WPI price data collection completely excludes the services sector," Mukherjee said, replying to whether the current system of collecting data for monitoring prices is fault

In India, the weekly WPI is more closely watched than the consumer price index, which is published monthly, because it covers a higher number of products. The government has plans to draw up a producers price index by modifying the present WPI, but work on that has been delayed due to problems in data collection.

"In the absence of legal backing for a dedicated data collection system, the data is received on a voluntary basis from ministries and attached offices, commodity boards, oil companies, individual industrial units, leading manufacturers, business houses, chambers of commerce and trade associations," Mr Mukherjee said.

He added data collection for the consumer price index (urban) has started, but did not give a time frame for its completion. The National Statistical Commission had in 2001 recommended that the Central Statistical Organisation compile a single national consumer price index by computing the CPI (Urban) and CPI (Rural) separately and then combining them together into an all-India index in line with global practice to improve accuracy and help policy makers in tracking price movements

 

The National Statistical Commission (NSC) under the Chairmanship of Dr. C.

Rangarajan also considered the issue of base year of WPI. The relevant

extract of the NSC recommendations on the issue of base year of WPI is

given below:

"To capture the recent changes in industrial structure on account of liberalization

and globalization, there is a need to have periodic revisions of WPI numbers,

preferably every five years but not later than ten years. The proposed revision

should bring base years of WPI and CPI numbers much closer to each other"

.

 In addition, it was also felt that it would be desirable to choose a base year that is not out of date or out of tune with the universe that it is designed to represent. Theeconomy has been in transition since July 1991, when the licensing regime  for all industries except a few, was abolished. The 1991 reform measures brought aboutintegration of domestic, industrial, trade and exchange rate policies. Changes havebeen taking place in the global scenario with the on-set of the WTO regime since1995. The Indian economy is now much more integrated with the global economywith a higher degree of openness.

. As far as possible, the base year should be aligned with the base years of other

important economic indicators such as National Accounts Statistics (NAS) series,

Consumer Price Index (CPI) for Industrial Workers and Index of Industrial

Production.

. Keeping all this in view, the Working Group embarked on the task of examining the data relating to production in different sectors of the economy as well as data on prices and several other related indices, aimed at arriving at a suitable base year.The choice of the base year was indeed quite a difficult exercise, considering notjust the criteria noted above, but also the rapid developments that have takenplace in the Indian economy as well as in the policy framework, within which theeconomy functions. Each sub-group was asked to examine this issue very closely,

and arrive at a conclusion.

All- India Consumer Price Index Numbers for industrial workers was revised to the

base year 2001. The series of National Accounts Statistics (NAS) was revised with

a base year of 1999-2000. The series on Index of Industrial Production (IIP) was

being revised with reference to the new base year 2000-01. Revision of the WPI

series in line with the new bases could have made it time-wise compatible as well

as consistent. It could have made the interpretation of data, particularly on

changes over time very convenient to users.

The Sub-Group on organized manufacturing, after extensively analyzing the

Annual Survey of Industries data (ASI) for the three consecutive years, viz, 1999-

2000, 2000-01 and 2001-02, recommended the year 2000-01 as the base year.

The year 2000-01 had been a normal year from the production and price stability

point of view. Also, in ASI, the coverage of census sector had been enhanced in

2000-01. The sub-group on Unorganised/Unregistered Manufacturing also

recommended the year 2000-01 as the base year for the revised WPI series. They

took into account the fact the 56th Round of the NSSO on unorganised

manufacturing was conducted during July 2000 to June 2001. This along with the

Third SSI Census with reference year would be used for selection of manufactured

items and the weighting diagram for the unorganised sector.

The Sub-Group on agriculture found the year 2000-01 to be a normal year for

agricultural items. However, respecting precedence, the Sub-Group recommended

the triennium ending 2001-02 as the base year for agricultural commodities.

. After taking into consideration the views of all the sub-groups, the possibility of

availability of production/price data, proximity of the base year to reflect the current

economic scenario and recommendations of the National Statistical Commission

regarding aligning of, as far as possible, the base years of different price indices,

the year 2000-01 was selected as the base year for the incoming revised WPI

series.

. The test-run of the new WPI series with the recommended base 2000-01 could not

be undertaken in view of the inadequate flow of price data from the manufacturing

 

units. One of the reasons for poor response from the manufacturing units was that

the price data required from such units related to a distant period in the past. It was

therefore decided by the Chairman of the Working Group in January 2007, after

taking the views of different experts, that the technical exercise relating to the

product basket and weighting diagram may be updated to a more recent base

year.

The Annual Survey of Industries data is the primary source for selection of the

product basket and derivation of product level weights for the manufacturing group

of the WPI series. In the beginning of 2007, when the Working Group was in the

process of informal consultations for selection of a more recent base year for the

new series of WPI, it was given to understand that ASI data for the year 2004-05

was being tabulated and would be available to the Working Group within a short

period.

. The availability of latest ASI data for the year 2004-05 was one of the major

factors, which went in favour of considering 2004-05 as the base year for the new

WPI series. The year 2004-05, being a relatively recent year, the task of collection

of backlog price data from this year onwards was expected to be more

manageable. Further, the year 2004-05, was a normal year, free from any major

economic upheaval. It was also the year for NSSO quinquennial round on

consumption expenditure and employment / unemployment which is likely to form

the base of various other statistical series.

. The Working Group, therefore, decided to select 2004-05, as the base year for the

new series of WPI. However, as decided by the Sub-group on Agricultural

Commodities earlier, the base year chosen for agricultural commodities is the

triennium ending 2005-06

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