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ShareThis delay itself is indefensible -- since the issue involves a critical sector of the economy -- but the decision to compile a weekly index based on only primary commodities and the fuel group and a comprehensive monthly series incorporating also the manufactures is likely to lead to a welter of inflation rates; this may confuse rather than clarify the price situation.
The idea of a WPI each month is intended to make the task of price collection easy, the index reliable and the inflation number more precise, that is free from revisions at a later stage.
Instead, under the proposed scheme, the old practice will be firmly entrenched, with the added drawback of an unrepresentative inflation number in that it excludes manufactures -- and presumably subject to revisions six weeks hence -- while a broad-based inflation will be issued month after month.
As it is, the task of construction of the WPI is complex and it will be made more so in the future. Abroad, the practice is to publish the index monthly and there is an air of finality about it.
In India, we have seen how the weekly inflation rate is unreliable and the main reason for opting for a monthly index is to make this exercise simpler and more credible as a gauge of the underlying price trends.
This problem may be specially so when the contemplated changes suggested by the working group are considered. Moreover, even with the new add-ons, the index is basically a producer price index so that it may not be a guide to retail price movements. The present disconnect between the inflation rates at the wholesale and consumer levels may persist. Let us take these issues one by one.
The new index will have 2004-05 as the base year. This may be a right choice in that it was a normal year and fairly recent to reflect the structural changes, the new commodities that have become vogue and people's preferences.
With a desire to be comprehensive, the Working Group had expanded the coverage to 1224 commodities from the present 435, with seven additions including crude oil in the primary articles group and in manufactures, the number will zoom to 1100 from 318.
Wisely, therefore, it had mooted that the index for manufactures be compiled on a monthly basis, in view of the problems involved in getting quotations.
Again, by including crude oil in the minerals group under the grouping, primary articles --- which does not a place in the current series since, it was thought, value of crude oil would be impacted on the index for petroleum products --- a reform has been brought about in the proposed index.
But the flip side to this is that in the weighting diagram, the weight assigned to manufactures will go up to 64.97% and to fuel to 14.91%.
In other words, the general index will be heavily influenced by the index for manufactures. The small fall in the weight for the primary articles will also mean that, as a measure of inflation, the new series will be subject to the same drawbacks of the present WPI.
Basically, it is illogical to use the wholesale index to measure inflation.
A retail price index, analogous to the WPI, is the need of the hour. But, the government clings to this wrong practice. Even here, the contemplated changes --- weekly indices for primary articles and fuels and monthly indices using all the three major groups including manufactures --- may not be a move in the right direction. A plethora of inflation numbers in stead of a unique figure will be the outcome.
