Wholesale price index makeover on the cards, base year to be 2017-18

Green tea, sanitisers among items in bigger basket

The wholesale price index (WPI), the widely tracked inflation indicator, is set for an overhaul with the base year being revised to 2017-18 from 2011-12 and the possibility of bringing within its tent fresh items to capture emerging consumption patterns.

Green tea, solar electricity, sanitisers, corn flakes, brown rice, mushrooms, watermelons, cricket gloves for wicket-keeping, flutes, electric iron, and aloe vera are among those that the revised WPI may rope in.

The index will become more inclusive with the item basket expected to nearly double to 1,196 items from 692 items currently, according to the draft report by the Working Group for WPI Revision, led by Ramesh Chand, member, NITI Aayog.

Food is expected to expand to account for 27 per cent of the index from 24 per cent now (including primary articles and the manufactured segment), whereas fuel and power may go down to 11 per cent from 13 per cent in the 2011-12 series.

The high-level panel has also recommended releasing six business services price indices -- banking, insurance, securities, air transport, telecom, and railways.

The widened product basket is expected to capture changing consumption patterns over the years to give a balanced inflation indication. It is consumption that defines production to a large extent.

“In the revised series, a selection of items has been guided by their relative importance in the economy. All the important items accounting for a significant value of production have been selected,” said the draft report.

In the case of agricultural commodities, new items have been included, such as medicinal plants like isabgol, aloe vera and menthol; fennel seed and methi seed (spices and condiments); moth (pulses); mushroom (vegetables); and watermelon (fruit). It has left out leafy vegetables owing to difficulties in collecting prices due to their extreme seasonality, non-standardised units of transaction, and lack of uniformity in variety.

With the government’s increased focus on renewable energy, the revised WPI will capture changes in solar electricity prices. The wind electricity index was also explored but it could not be considered due to lack of data for the base year.

Primary articles will likely account for a larger share, 24 per cent, from 22 per cent. Manufactured goods will continue to comprise the biggest share in the WPI at 63.9 against 64.2 now.

India has a retail inflation measure, but because of its much longer history, the WPI is still the most widely followed measure of inflation. It supports compiling National Account Statistics. It is used as a deflator of nominal macroeconomic aggregates to make the GDP figure as precise as possible, and that is used for fiscal, trade and other important policy decisions.

The WPI is widely used procuring raw material, plant and machinery, construction, and infrastructure projects and is adopted for revising toll rates, prices of essential drugs, tariff setting in major ports, electricity, etc.

The WPI was launched in 1947 and the commodity basket was classified into five groups with 78 items. It has undergone revision seven times since.