Fuels may get more weight in WPI

The weight of the fuel group is set to increase in the revised Wholesale Price Index (WPI), the key measure of price movements across a wide range of commodities.

At present, the weight of the fuel group, which also includes power, light and lubricants, is 14.22 per cent. The weights of primary articles and manufactured products are 22.02 per cent and 63.74 per cent, respectively.

A committee headed by Planning Commission member Abhijit Sen is revising the WPI and the key change it is working on is rejigging the weights assigned to various commodities and commodity groups.

The committee has also decided to update the base year to 2004-05 from 1993-94 and almost double the number of commodities in the index from the current 435.

Under the new system, the change in weight will reflect both the growth in output of the commodities and increase in prices. "The weight will go up for the products whose price multiplied by quantity has increased more between 1993 and 2004," Sen said.

"Manufacturing goods' prices do not rise much. Prices that really rose during 1993 and 2004 were (of products) in the fuel group. Hence the weight of the fuel group will tend to increase," Sen added.

On whether the increase in the weight of the fuel group will be at the expense of primary commodities or manufactured products, Sen said: "This is a bit complicated. In case of primary commodities, although the output growth is slow, prices of some primary commodities are quite high. For some others, the marketed ratio has increased, meaning that more produce is coming to the market and less is being kept with farmers. So this will be reflected in the weight as well."

Increasing the weight of the fuel group in the WPI is expected to significantly influence inflation, which has been a key concern of both the government and the Reserve Bank of India over the past year.

Inflation stood at over 6 per cent in January last year and has since been brought down to below 4 per cent through a series of monetary and fiscal interventions.

"An increase in fuel price with a higher weight for fuel group will have a larger impact on inflation," Pronab Sen, chief statistician of India, said.

Fuel inflation stood at 3.66 per cent as against the 3.83 per cent WPI inflation for the week ended January 12. The government has been considering a fuel price hike, but is yet to take a final call on the issue owing to political pressures ahead of general elections in 2009.