By Sanjay Thapa Jeet
Recently, the government revamped the Wholesale Price Index (WPI), the Consumer Price Index (CPI), and the Index of Industrial Production (IIP), in order to make them more realistic. However, having timed these changes just before the implementation of the imminent Goods and Services Tax, the move has raised a few eyebrows.
Further, the newly revamped indices are measured devoid of indirect taxes. Thus, they will result in the consumer paying the landed cost of commodities, including the indirect taxes imposed by the new GST regime. In addition to this, there has been a growing debate over whether the governments attempt of having a ‘One Nation, One Tax’ will, in fact, bring down prices. Over the world, the implementation of a scheme like this has led to higher inflation.
The role of the MOSPI
The Ministry of Statistics and Programme Implementation (MOSPI) has been debating, for quite some time, about making the indices IIP, WPI, and the CPI more realistic by cutting out commodities that are either no longer relevant or are outdated. It has also revised the base year for the IIP, from the old series of 2004-05 to 2011-12, in order to align it with other macroeconomic indicators like the GDP.
Further, the Secretary of the MOSPI stated that the Technical Review Committee plans to meet at least once a year to review the basket of commodities, and to remove those that have lost relevance. The basket has also been updated to account for the seasonality of the fruits and vegetables.
The dilemma of the indices
According to the MOSPI, the indices have been made more comprehensive by replacing the basic goods with primary goods, as well as by introducing an infrastructure and construction goods category. This change has been done to provide clarity on the movement of the IIP of primary goods in the industry and to address the linkage of production with the infrastructure and the construction sector.
As in the earlier 2004-05 series, the practice of using a wholesale price index to deflate items with reported data will continue. The number of new items under the 2011-12 series for which data will be captured in value term will be around 109, instead of the 54 in the existing series. The WPI with the base year of 2011-12 has been used for deflation. However, the number of sources reporting the data for the compilation of the IIP in the new series will only be 14 as compared to 15 in the current series. The Department of Industrial Policy & Promotion (DIPP) will be the new source for inclusion of iodised salt in the new series, for instance.
Change for the better
The National Informatics Centre (NIC), will now collate data at three levels, and not just at the two levels that were used before. This has been done to ensure better representation of the data and to create more transparent indicators. Also, the collation of electricity generation data will include data from renewable energy sources in the new series. This has been done to reflect the increasing significance of electricity generation from renewable sources. The inclusions will follow from April 2014 onwards as data from earlier months are not available.
The mining sector coverage has also undergone a change, as the classification of certain minerals has been amended. Further, as many as 27 non-metallic minerals have been declassified and have been declared as minor minerals. For capital goods, the data will be captured in terms of ‘work in progress’, to represent the growth of capital goods, and to avoid reporting of production figures in bulk after the completion of production.
Finally, the government also proposes to introduce Producers Price Index as well as Service Index in the future. These are currently being worked out by the MOSPI.
Sanjay Thapa Jeet is an alumnus of the Cambrian Hall Dehradun and has worked with the Indian Express and India Today.
Featured Image Source: Consumer Reports