The Government periodically reviews and revises the base year of the macroeconomic indicators as a regular exercise to capture structural changes in the economy and improve the quality, coverage and representativeness of the indices.
In this direction, the base year of All-India WPI has been revised from 2004-05 to 2011-12 by the Office of Economic Advisor (OEA), Department of Industrial Policy and Promotion, Ministry of Commerce and Industry to align it with the base year of other macroeconomic indicators like the Gross Domestic Product (GDP) and Index of Industrial Production (IIP).
The Wholesale Price Index (WPI) series in India has undergone six revisions in 1952-53, 1961-62, 1970-71, 1981-82, 1993-94 and 2004-05 so far. The current series is the seventh revision.
The revision entails shifting the base year to 2011-12 from 2004-05, changing the basket of commodities and assigning new weights to the commodities.
It has generally been the practice to undertake the revisions on the advice of a Working Group constituted each time.
For the new series with base 2011-12=100, a Working Group was constituted on 19th March 2012 chaired by Late Dr. Saumitra Chaudhuri, Member, erstwhile Planning Commission and comprised most stakeholders.
In the revised series, WPI will continue to constitute three Major Groups namely Primary Articles, Fuel & Power and Manufactured Products. Highlights of the changes introduced in the new series are summarized below:
Updated item basket and weighting structure conforming to the structure of economy in 2011-12.
Increase in number of items from 676 to 697. In all 199 new items have been added and 146 old items have been dropped.
The new series is more representative with increase in number of quotations from 5482 to 8331, an increase by 2849 quotations (52%).
In the new series of WPI, prices used for compilation do not include indirect taxes in order to remove impact of fiscal policy. This is in consonance with international practices and will make the new WPI conceptually closer to ‘Producer Price Index’.
A new “WPI Food Index” will be compiled to capture the rate of inflation in food items.
Seasonality of fruits and vegetables has been updated to account for more months as these are now available for longer duration.
Item level aggregates for new WPI are compiled using Geometric Mean (GM) following international best practice and as is currently used for compilation of All India CPI.
A high level Technical Review Committee has been set up for the first time to carry out dynamic review process in order to keep pace with the changing structure of the economy.
New Weighting Structure
The major changes in weights, number of items and quotations between
WPI 2004-05 and WPI 2011-12 are given in the table below:
No. of Items
|FUEL & POWER
The index basket of the new series has a total of 697 items including 117 items for Primary Articles, 16 items for Fuel & Power and 564 items for Manufactured Products.
In the Primary Articles, new vegetables and fruits such as Radish, Carrot, Cucumber, Bitter Gourd, Mosambi, Pomegranate, Jack Fruit, Pear etc have been added. In the mineral group items like Copper Concentrate, Lead Concentrate and Garnet have been added whereas Copper Ore, Gypsum, Kaolin, Dolomite, Magnesite have been deleted. Natural Gas has been added as a new item.
Fuel and Power:
In the Fuel and Power Major Group, the index for non-coking coal will also be available at a disaggregated level based on Gross Calorific Value ( GCV) to cater to the requirements of diverse user groups:
The index for electricity in the new series will be compiled as a single item in comparison to the separate indices according to usage in agriculture, industry, domestic, commercial, and railways in 2004-05 series. In the new series, monthly average rate of sale of power of 49 selected generating stations covering Hydro and Thermal sectors is being used to compile the index for electricity.
In the Mineral oil sub-group, Light Diesel Oil has been deleted in view of its decreasing importance while Petroleum coke has been added as a new item owing to its growing importance. There have been some changes in weights of the retained mineral fuels. The number of quotations has been increased significantly to give wider geographical coverage.
A major review of manufactured products has been carried out. Accordingly, the number of 2 digit groups has been increased from 12 to 22 in the new series in keeping with National Industrial Classification (NIC) 2008. Around 173 new items like Conveyer Belt, Rubber Tread, Steel Cables, Tissue Paper, Wooden Splint, XLPE Compound have been added while 135 items like Khandsari, Papad, Video CD-Players, etc., have been dropped.
WPI Food Index:
A new “Food Index” is being compiled combining the “Food Articles” under “Primary Articles” and “Food Products” under “Manufactured Products”. Together with the Consumer Food Price Index released by Central Statistics Office, this would help monitor the price situation of food items better.
Major conceptual differences between WPI (2004-05) with WPI (2011-12)
Users of the new WPI series (base 2011-12) while comparing with the old series may take note of the following conceptual differences:
a) The item basket has been revised with inclusion of new items and exclusion of old ones. Basket of commodities has been selected afresh in order to capture the structural changes that have occurred in the economy. As such, there may not be one-to-one match for all the commodities in the two series.
b) The number of 2 digit groups in Manufactured products has been increased from 12 to 22 in keeping with NIC- 2008.
c) There has been an increase in number of source agencies in general across all Major Groups. Dormant/closed sources have been removed.
d) Item level prices do not include indirect taxes. Item level indices are compiled using geometric mean (GM) whereas in the 2004-05 series arithmetic mean (AM) was used.
e) The electricity sector is now a single item group that includes data relating to average rate of sale of power by generating stations to distributors. In contrast, in WPI (Base 2004-05) retail level tariffs applicable to different sectors such as agriculture, industry, domestic, commercial and railways were used for compilation of WPI for electricity.