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Home > India > Business > Business Headline > Report

'Wholesale Price Index is misused by everybody'

Asit Ranjan Mishra | June 23, 2008 11:45 IST

At a time when the headline inflation, released every Friday, brings fever to everybody, especially the government, Chief Statistician of India Pronab Sen bats for a monthly headline inflation number.

He talks about a national-level consumer price index, but maintains that the Wholesale Price Index is a better tool for analysts and policy makers to gauge the extent of price rise.

Excerpts of a candid interview with Business Standard:

Now that a new WPI series is being contemplated, how do you think the shift from weekly to monthly system will actually help the accuracy of WPI?

As far as the weekly WPI is concerned, the data received for the primary product is pretty good. The real problem is the data for manufactured products. We receive only 18-20 per cent of the data for manufactured products for the first weekly estimate that we release.

So, if you are working with such low data, what kind of reliability one can expect from the data. Everybody, including the policy makers, reacts to the first set of provisional data. Only researchers look at the final data. So on one hand, you have a weekly WPI with questionable reliability.

On the other hand, the monthly data will be much more reliable, but you will get it less frequently. So it is a trade-off between higher frequency but lesser reliability and lower frequency but higher reliability.

Don't you think there should be a single central agency for publishing statistical data?

We are too large a country for such a system. Most other countries have centralised statistical systems, but they are almost one-tenth of our size. So, I do not think it is remotely possible to have a centralised system. We have to work with a decentralised system with greater coordination.

But doesn't it create too many problems? Like in case of the Index of Industrial Production (IIP), though the new series is ready, it is yet to be released.

The problem for IIP is data collection for the new units included in the series. Until the data flow stabilises, you cannot release a new series. Most of the data come from administrative ministries. Each ministry has to collect data for its own functioning.

It makes no sense to duplicate that process. We are supplementing their efforts through the Central Statistical Organisation and the National Sample Survey Organisation.

Two new consumer price indices: CPI (Urban) and CPI (Rural) are being worked out. What is the status of these indices?

We are very confident about the CPI-U as we are discontinuing the CPI for urban non-manual employees (UNME). But we are not sure about CPI-R as we do not have the necessary manpower. Now we will give you a parallel series for CPI-UNME and next year we will stop it.

However, we cannot discontinue the CPI-IW and use that workforce for CPI-R, as minimum wages are determined on the basis of this index. It will have to be a completely parallel exercise.

Then what is the solution?

I think we will be better off in tying up with the state governments. In the rural areas, the person has to be present physically. So states are at a better position to put these persons at the village level.

Most of the countries follow CPI, but India is one of the few countries where WPI is used as the headline inflation.

That is not correct. The fact is that we also have CPIs.

But we do not have a unified CPI.

Why do we need one? The WPI, to my mind, is an extremely important piece of data. However, it is misused by everybody, particularly by the media.

If you think in terms of policy, the various components of WPI allow you to do a much more analytical work on inflationary process than CPI. The problem is everybody forgets the components of WPI. They only go by the headline number. This is not the fault of the index, it is the fault of analysts.

But don't you think the headline inflation makes news all over the world?

Though it makes news, that is not the issue. Data is not collected for making news, it is collected for making policy. If properly used, WPI is an extremely useful number.

So you don't see CPI ever replacing WPI in India?

CPI reflects cost of living. It has its own importance. In fact, our problem is we do not use CPI enough. However, we must always remember that any CPI-based measure will always capture inflation with a long time lag.

This is because while WPI captures price inflation at every stage of production, CPI only captures price rise at the final product level. When there is a cost push inflation, CPI will reflect the data with a lag of more than six months, while the WPI will reflect it immediately.

Is there any time frame when the CPI-National will be ready?

Not yet. Until the data collection issues are resolved, it is a difficult proposition. It has to be done at the retail level. We must have people who can go to the shops and collect the data.

Can the private agencies be of some help for data collection?

We have been exploring that possibility. But the problem is that such organisations do not exist. We have a list of non-government organisations who have the potential to be used for data collection.

We will approach them and see how much of work could be offloaded. If enough work could be offloaded for the CPI-R, then we will be able to do it.

But the current CPIs reflect price inflation only for particular sections of the society?

If my primary interest is what is happening to the vulnerable, then the present CPI system is perfectly good. If you want to see what is happening to the middle class, then of course it does not give you that information. In fact, 70 per cent of our population who are agricultural labourers are captured by CPI-AL.

The CPI-IW captures another 20 per cent population who are industrial labourers. It is the rest 10 per cent that these indices do not capture who are the most vocal ones.

But the base years of these indices have not been revised for ages, for example the base year of CPI-AL is 1986-87?

That is a perfectly legitimate criticism. On that I absolutely agree. The right way to do is to revise the base year every five to six years, like in case of the WPI. But this has not happened.

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