Wholesale Recast

Group on Recasting of the wholesale price index (WPI) to include 1,200 items in the revised WPI series is welcome. It would assist in improving the measurement of inflation. Presently the WPI series, which consists of just 435 items, fails to capture the massive structural changes that have occurred in the economy over the last few years. Thus, inflation figures released every week do not reflect price movements in some crucial sectors of the economy. Inclusion of important items such as computers and television sets in the WPI series which have experienced enormous sales and falling prices in the last few years would not only make the series more representative but also keep inflation in check. Services account for 52% of gross domestic product (GDP) but the WPI series, which does not cover services, does not reflect this fact. The endeavour to develop a separate Services Price Index (SPI) covering a broad range of services is timely. With a progressive decline in the share of the primary sector in GDP and robust growth in the manufacturing sector, the proposal to assign a lower weight to primary articles and a higher weight to manufacturing seems logical. But the plan to increase the weightage to fuel and oil holds no ground.
Presently, fuel, power, light and lubricants (FPLL) makes up 14.22% of the index. This sector has experienced relatively higher inflation than manufactures and primary articles on account of spiralling international crude prices. But the overall inflation rate remains low. This clearly means that any attempt to increase the weight of FPLL would have minimal effect on overall inflation figures in the absence of concomitant hike in petroleum refinery product prices. The express need, therefore, is to expedite oil sector reforms rather then tinker with weightages. Currently, substantial underreporting of data by various trade bodies makes regular updating of prices difficult. This, in turn, depresses inflation figures artificially. Incorporation of better methods to collect information including greater use of IT would facilitate improved estimation of inflation.

-- The Economic Times Editorial dated May 30th, 2006