FE Editorial : Still many holes in wholesale

Tue, Oct 20 02:08 PM

Cabinet approvals for monthly release of wholesale price index data and a new weekly index of primary commodities look like a big step in remodelling an old statistical product. But this conclusion is much like those drawn on the basis of current weekly WPI—an exaggerated claim based on misleading evidence. The truth is that the Cabinet decision is a very small and unsure step forward in what should be a very big and critical change. The government has said switching to monthly price data brings India in line with global best practices. True. But the fuller story is more complicated. The weekly index was rapidly losing its credibility. Think about it: prices for more than a third of the commodities in the current basket were calculated on the basis of one to three quotations. That should appal any empirical statistician. As pointed out by the working group on WPI reform, the trade-off was between using frequent, less reliable data and less frequent, but more reliable data. The Cabinet okaying another official weekly price index, which concentrates on primary commodities, seems like going against the spirit of the working group's recommendation. It is, and it is not a good thing. The government seems to be responding to arguments from the finance ministry and RBI, which insisted on collection of weekly figures that, they said, helped reduce the response time for policy decisions related to politically-sensitive food and fuel prices. But, surely, this will only add to the confusion. A monthly price index of all commodities and a weekly one of primary articles plus three consumer price indices (CPI) that already exist—how will this help in better policymaking? Already, WPI and CPI seem to tell different stories. We may have two WPIs telling two different stories soon. Incidentally, CPI is even more outdated than WPI. Plus, do we really need a weekly index for policy response? If food prices are increasing, say, does the government make policy every Thursday—when weekly inflation data is released—or does it look at a trend and make a one-time policy? Monthly data should be enough.

The base of WPI has been revised from 1993-94 to 2004-05. But it took a long time—the Abhijit Sen committee was set up in 2003, it took five years to submit its report and it took the government one year to implement the base year change. India's official statistical system in general is hopelessly creaky. A statistical commission is supposed to take charge of things and bring data reporting and processing into the 21st century. The option of outsourcing data collection to credible and properly incentivised private agencies exists. But it's not explored seriously. And there seems to be no de jure admission officially that the whole system of year-on-year data processing is flawed, anyway. If moving closer to global best practices is the goal, India should move to a seasonally-adjusted, month-on-month data processing system for all the economic indicators.

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