Indian Economy, 5th edition (27 page)

Many new items have been included in the new series basket such as flowers, lemon and crude petroleum in
Primary Articles
and Ice cream, canned meat, palm oil, readymade/instant food powder, mineral water, computer stationary, leather products, scooter / motorcycle tyre, polymers, petrochemical intermediates, granites, marbles, gold and silver, construction machinery, refrigerators, computers, dish antenna, transformer, microwave oven, communication equipments (telephone instruments), TV sets, VCD, washing machine and auto parts in
Manufactured Products
. A complete list of commodity basket including their weights in the new series of WPI with the base 2004-05 is available on the website www.eaindustry.nic.in.

Revised Series: New Initiatives

There has been a substantial increase, both in terms of the number of commodities and its geographical coverage, in the revised series of WPI (base 2004–05=100), as compared to the earlier revisions undertaken so far.
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This would, undoubtedly, disseminate the more realistic and reliable data, facilitating better decision making and policy intervention.

The revised series of WPI (base 2004–05=100) has also addressed the issue of flow of regular data. The NIC unit of the Office of the Economic Adviser has developed an online data transmission mechanism, whereby, the manufacturing units can supply price data through internet. Also, an arrangement has been made with National Sample Survey Office (Field Operations Division) to get price data on regular basis. These measures have improved the flow of price data.

The launch of the new series of WPI with base year 2004–05 has been one of the major initiatives of the Ministry of Commerce & Industry.

Since
November 2009
the WPI data are already being released in the following way:

(i)
the first set of data of WPI (for the
‘Manufacturing Products’
) are released on monthly basis.

(ii)
the second set of data of WPI (for the
‘Primary Articles’
and
‘Energy and Fuel Group’
) are released on the weekly basis.

Consumer Price Index

Other than the WPI, India calculates the inflation at the consumer level also, similar to all the economies of the world. As the consumers in India show wide differentiation of their choice of consumption, purchasing powers etc a single consumer price index (CPI) has not been possible yet which can encompass all the Indian consumers.
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Depending upon the socioeconomic differentiations among the consumers India has four differing sets of the CPI with some differentials in the basket of commodities allotted to them. Though these four types of the CPIs is proposed to be withdrawn in coming times, data for them are still released. A brief account of the four CPIs are as under:

I. CPI-IW

The Consumer Price Index for the industrial workers (CPI-IW) has 260 items (plus the services) in its basket with 2001 as the base year
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(the first base year was 1958–59). The data is collected at 76 centres with one month’s frequency and the index has a time lag of one month. It contains 120–160 commodities in its basket.

Basically, this index specifies the government employees (other than banks’ and embassies’ personnels
). The wages/salaries of the central government employees are revised on the basis of the changes occurring in this index, the dearness allowance (DA) is announced
twice
a year. When the Pay Commissions recommend pay revisions, the base is the CPI (IW).

II. CPI-UNME

The Consumer Price Index for the Urban Non-Manual Emplyees (CPI-UNME) has 1984–85 (first base year was 1958–59) as the base year and 146–365 commodities in the basket for which data is collected at the 59 centres in the country—data collection frequency is monthly with two weeks time lag.
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This price index has limited use and is basically used for determining dearness allowances (DAs) of employees of some foreign companies operating in India (i.e. airlines, communications, banking, insurance, embassies, and other financial services). It is also used under the Income Tax Act to determine
capital gains
and by the CSO (Central Statistical Organisation) for deflating selected service sector’s contribution to the GDP at factor cost and current prices to calculate the corresponding figure at constant prices.

On the advice of its governing council the NSSO (National Sample Survey Organisation) is at present conducting a Family Living Survey (FLS) to obtain the profile of the present consumption pattern of urban non-manual employees so that the CPI (UNME) could be shifted to the present base year.

Presently, the CSO is also examining the possibility of constructing a consumer price index for the urban employees (a new index which might be like CPI - UE!).

III. CPI-AL

The Consumer Price Index for Agricultural Labourers (CPI-AL) has 1986–87 as its base year with 260 commodities in its basket. The data is collected in 600 villages with a monthly frequency and has three weeks time lag.

This index is used for revising minimum wages for agricultural labourers in different states. As the consumption pattern of agricultural labourers has changed since 1986–87 (its base year), the Labour Bureau proposes to revise the existing base year of this index. For the revision, the consumer expenditure data collected by the NSSO during its 61
st
NSS Round (2004–05) is proposed to be used.

The governments at the centre and states remain vigilant regarding the changes in this index as it shows the price impact on the most vulnerable segment of the society, this segment spends almost 75 per cent of its total income on the purchase of food articles. Governments’ failure to stabilise the index in the long range can make them politically volatile and be translated into political debacles. That is why the FCI is always kept ready to supply cheaper foodgrains in the situations of any price rise.

IV. CPI-RL

There is yet another Consumer Price Index for the Rural Labourers (CPI-RL) with 1983 as the base year, data is collected at 600 villages on monthly frequency with three weeks time lag, its basket contains 260 commodities.

The agricultural and the rural labourers in India create an overlap i.e. the same labourers work as the rural labourers once the farm sector has either low or no employment scope. Probably, due to this reason this index was dropped by the Government in 2001–02.
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But after the government change at the Centre the index was revived again.
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New CPI

With the purpose of making inflation data in India more transparent, updated and similar to the practices among most of the economies, a
Working Group for Revision of CPI Number
was set up under the Chairmanship of the Planning Commission member, Prof. Abhijit Sen. In light of the recommendations the Government recently announced the
New Consumer Price Index.

The Central Statistics Office (CSO) of the Ministry of Statistics & Programme Implementation announced that the new series of Consumer Price Index(CPI) numbers for Rural, Urban and Combined (Rural +Urban) on base 2010 ( January to December)=100 taking all segments of rural and urban population for the month of January, 2011 was released by the Central Statistics Office for the States/UTs and all-India on 18th February, 2011.These indices will be available for five major groups namely Food, beverages and tobacco; Fuel and light; Housing; Clothing, bedding and footwear, and Miscellaneous.

Present CPI numbers do not encompass all the segments of the population in the country and as such they do not reflect the true picture of the price behaviour in the country. It is therefore necessary to compile a CPI which takes into account the consumption patterns of all segments of the population.

New series of CPI for urban areas

CPI (Urban) numbers are compiled at State/UT as well as at all-India level. Weighting diagrams (consumption patterns) of the CPI (Urban) have been derived from the results of the NSS 61st round of Consumer Expenditure Survey (2004–05).

For regular price collection, 310 towns have been selected, which include all State/UT capitals. From each selected town, price data are collected in respect of items consumed by the population of the respective State/UT. In all, 1114 price schedules containing an average of 250 items are canvassed every month. House rent data are also collected from a fixed set of rented dwellings from the selected towns. Prices of items are collected by the field officials of the National Sample Survey Office (NSSO).

New series of CPI for rural areas

CPI (Rural) numbers are compiled at state/UT and all-India levels. Weighting diagrams of the CPI (Rural) have also been derived from the results of the NSS 61st round of Consumer Expenditure Survey (2004–05).

With a view to have a workload within manageable limits and considering the fact that the CPI (Rural) would provide the price changes for the entire rural population of the country, a total of 1181 villages have been selected at all India level. The broad criterion of selection of villages is to have representation of all the districts within State/UT and two villages from each district have been selected randomly from different tehsils. However, to provide adequate representation of the total rural population in some States/UT, allocated number of villages to the states has been increased or decreased on the basis of population of the concerned State/UT. Regular prices are collected by the officials of the Department of Posts. One schedule containing an average of 225 items from each selected village is canvassed for collection of prices every month.

National CPI

CSO will also compile national CPI by merging CPI (Rural) and CPI (Urban) with appropriate weights, as derived from NSS 61st round of Consumer Expenditure Survey (2004–05) data.

Weighting diagrams

The share (weight) of the Food, beverages and tobacco group in the all India CPI (Rural) is 59.31% and it is 37.15% in the all India CPI (Urban). Fuel and light group has a weight of 10.42% in CPI (Rural) and 8.40% in CPI (Urban). Clothing, bedding and footwear group has weight of 5.36% in CPI (Rural) and the weightage of 3.91% in CPI (Urban). Housing group has not been given any weightage in the rural areas. CPI as its share is around 1% and it has been distributed to other groups on pro rata basis. CPI (Urban) has a weightage of 22.53% in respect of Housing group. The Miscellaneous Group consisting of education, medical care, transport and communication etc has 24.91% weight in the all India CPI (Rural) and the corresponding weight in the all India CPI (Urban) is 28%.

Release of indices

Index numbers for both rural and urban areas and also combined for the month of January, 2011 was released on 18
th
February, 2011. It is proposed to release provisional indices for a period of one year. Indices for States/UT will be released only if adequate number of schedules is received at the time of compilation of index. These provisional numbers will be subsequently revised and final numbers with complete data for all-India and also for all the States/UTs would be released with a time lag of two months. It is expected that data reporting will be considerably improved and there may not be any need to bring out separate provisional numbers after December, 2011. Indices for January, 2012 onwards along with annual inflation rates are likely to be released with a time lag of one month.

Revision of Indices

These new CPI numbers would be revised on the basis of the results of the next round of Consumer Expenditure Survey scheduled to be conducted during 2011–12 by the NSSO. Thereafter, revision will be undertaken every five years or so (whenever large scale Consumer Expenditure Survey data become available).

Trends in Inflation

Inflation has been a highly sensitive issue in India right since the Independence and it has been so during the ongoing reforms process period, too. It has an incessant tendency of resulting into ‘double digits’, taking politically explosive proportions like governments falling at the Centre and state levels due to price rise of the commodities such as edible oil, onion, potato, etc. In such situations the Government in general has been taking recourse to tighter money supply to contain the state level disturbances due to price rise of the commodities such as edible oil, onion, potato, etc. althogh it has contained inflation but at the cost of higher growth. Price rise got rooted in India’s political psyche in such a way that the Government did check frequent famines quickly at the cost of long-term endemic hunger and sustained malnutrition.
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The Government did not go to search the fine balance of the trade-off between inflation and growth due to political risk. The present period (2007–08) is almost similar to it when economy required higher money supply for investment but the Government’s monetary policy proposes to contain inflation below 6 per cent with the help of tighter monetary policy.