Stressing the need for more accurate inflation data, Arvind Virmani, the finance ministry’s chief economic adviser, says the system of finalising the wholesale price index (WPI) after just two months of the release of provisional number needs to change.
“There is a provisional number and a revised number that is fixed after two months. In my view, that needs to change,” Virmani told Business Standard in an interview. This would allow for more accurate analysis of inflation and help in better fiscal, administrative and monetary policy interventions on the price front.
Currently, the WPI covers 435 products and is calculated by the Department of Industrial Policy and Promotion on the basis of nearly 1,918 price quotations for every weekend. The department then releases the provisional number every Thursday.
This provisional data is then revised after two months, once updated price information is received, and announced as the final index number. In the recent past, the provisional WPI has been revised upwards and that too by large margins. It has been observed that the price data for many commodities captured in the index is not revised for many months together, putting a big question mark on the accuracy and relevance of the inflation number.
“Since there is a lot of lag in the system, I do not think there is any merit in freezing the estimate after two months. The reasoning perhaps is that we cannot have three or four revisions. I have heard criticism of GDP (data), that it has four sets of revisions — advance, quick and so on. But, that is better than freezing it in the second year and having a wrong number. Would you prefer a wrong number? Suppose, they froze the GDP after two years, and it was completely wrong. It would become useless for subsequent statistical analysis,” Virmani added.
“It is better to have a provisional revised and final number, and take more time over it, than to say we will do it in one month and we will freeze it. For example, the industrial production data is revised and finalised after a year. That is much better,” he said.
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“Why freeze it after two months when that number can be totally wrong. I would prefer a final number that is accurate. I cannot even look at the past numbers as half the numbers would be wrong,” the CEA added.
Virmani’s observation comes at a time when the government is looking at revamping the entire WPI data and reporting mechanism.