WPI, CPI AND IIP DATA TO GET A MAKE OVER?

By Ruma Dubey

Every time that the IIP data comes in, we kind of shrug our shoulders and say, “what else”. Ditto for inflation data, especially WPI which has been showing a deflation while on the CPI front, the RBI Governor is grappling with rising prices. We just look and move on – somehow, faith on these numbers has suffered a blow.

But at the same time, we also know that it is this very same data which the RBI uses to hike/reduce rates – the CPI rates are its benchmark. Thus we can say that the entire economic matrix of the country lay on these numbers. Some it also makes one wonder why the RBI, like the US Fed does not itself publish inflation data?

CPI tracks retail prices paid by consumers for finished products. There is a major difference between the WPI and the CPI as the prices differ due to subsidies, sales tax, excise duties, distribution costs. In that sense PPI is more like core inflation as it is more stable. It usually excludes food and fuel prices from the basket of household spending as they both tend to be very volatile and if this volatility is passed on to the consumer, then it becomes difficult to access the core inflation.

IIP is not about orders clocked or sales made; IIP measures production from various sectors. The weightage of IIP data is broadly divided into three segments – manufacturing (75.53%), mining & quarrying (14.15%) and electricity (10.32%). The numbers for IIP are usually released within 6 weeks after the end of the month. The figures are revised in the next and the third month based upon the revised Industrial production data furnished by the source agencies. The data is collected from Department of Industrial Policy and Promotion, Indian Bureau of Mines, Central Statistical Organization, Central Electricity Authority and 11 other agencies. 2004-2005 is considered as base year for calculation. i.e. the industrial output in 2004-2005 is considered as 100 index points. And it also takes into account micro, small and medium enterprises. Many economists say that data collection in IIP could be plagued with two problems – either data does not get collected every month and when it does get collected, it is all tallied up in one single month and thus the irrational volatility. Or else data is coming in from only a handful plants and then it is generalized for the entire sector.

What we hear now is that Govt, here the Ministry of Statistics and Programme Implementation (MOSPI) and Central Statistics Office (CSO) will be releasing updated indices this year to measure factory output and wholesale prices. It says, “this year” and that is 2016 not fiscal FY16.

Here is a look at what changes are being looked at:

• The indices will have a wider basket of commodities and reporting units – will cut down volatility in monthly data trends.
• The base year will be 2011-12, as against the current 2004-05.
• Reporting units that do not furnish timely and correct data will be penalized under the Collection of Statistics Act, 2008.
• The IIP data will have a more broad based frame of factories using data from the Annual Survey of Industries.
• There will also be a bigger basket - 450 items as against 399 items in the current index. Of this 50% will be new items to capture the changing tastes of contemporary India.
• Eight factories per item will be used as reporting units – will bring down volatility.
• Aims to have one more index to measure production in micro, small and medium industries; encompassing more unorganized sector units.
• IIP will essentially give a picture of organised manufacturing units.
• Weightage of sectors – mining, manufacturing and electricity to undergo change.
• The new WPI inflation series may measure the price as the listed price excluding trade discounts.

Well, this sounds really good and we hope that this new data does see the light of the day this year. It is very pertinent at this juncture, actually, at every juncture to have transparent and accurate data to arrive at the ultimate right decision.