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The government on Thursday revised the base year of the consumer price index (CPI) and weights of various items in it. National Statistical Commission chairman Pronab Sen tells Ishan Bakshi the index was revised to better reflect the consumption pattern. He talks on this and the industrial growth numbers. Edited excerpts:
The Consumer Price Index was launched in 2011. Why has it been revised again?
Due to change in the consumption pattern. In the old CPI, the consumption base was 2004-05. Now, it has been brought up to 2011-12.
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Food accounts for a bigger basket in rural areas but rent is a dominant component in urban areas and there has been virtually no movement in rent inflation. That has been a big dampener.
Food inflation remains elevated. Fruit, vegetables and pulses are all showing high rates of inflation. Are supply-side constraints still at play?
Yes. The basic structural issue hasn't gone anywhere. In food, cereal and cereal-based products have come down and the reason is that the government intervened in the market. Yet, the structural problem hasn't gone away. The base effect and the monsoon effect would have pretty much played out by now.
Is the Reserve Bank likely to revise its target, based on the new inflation series?
I don't think it makes much of a difference. From you look at the numbers, these aren't dramatically different
The growth in the Index of Industrial Production (IIP) was 1.7 per cent, while gross domestic product (GDP) growth was 7.5 per cent. Is IIP losing its relevance and its impact on GDP numbers?
Not at all. IIP is still the only measure you have on the physical volume of production. In the case of GDP, its relevance is reduced but it certainly hasn't gone away. Its impact on GDP calculations would be a bit lower. It will still be relevant for the quarterly estimates. For the annual estimates, in any case, we used to replace the IIP with the ASI (Annual Survey of Industries) which came out with a two-year lag.
The latest GDP numbers suggest significant value addition. Should this not show up in other economic indicators such as employment, corporate tax?
Employment is driven by volume of production and if you continue to go by IIP and I think we should, it suggests that volume of production hasn't gone up dramatically. It's the value added per unit of output that has gone up and that should reflect in higher corporate taxes.
The other thing to remember is that one reason growth is looking so large is because inflation has come down. So, the nominal value, which is what your tax collections are going to be based on, hasn't gone up that much. It's the real value that has gone up because inflation is down. So, the nominal value, which is what tax collections are based on, hasn't gone up. So, don't have great expectations of corporate taxes because they were based on an original nominal GDP growth of 13.5 per cent and what you are getting now is a nominal GDP growth of 11.5 per cent.
Third quarter numbers show growth was driven largely by government expenditure. With the government likely to compress spending, is growth likely to slow down in Q4?
I think it could be. The advance estimates also suggest that.
