11.4.1 The Wholesale Price Index (WPI) series with base 1993-94 is compiled by the Office of Economic Adviser (OEA), Ministry of Industry, on a weekly basis, based on the price quotations collected by the official as well as non-official source agencies in respect of 435 selected items and commodities identified in the basket of the index. Owing to the wide variety of sources, centres, and specifications and due to the practical compulsion of collecting data by the voluntary method, it is difficult to maintain uniformity in the concept of wholesale price in the collection of price data. In many cases, these prices correspond to farm-gate, factory-gate or mine-head prices; and in many other cases they refer to prices at the level of primary markets, secondary markets or other wholesale or retail markets. The Ministry of Agriculture has defined wholesale price as the rate at which a relatively large transaction of purchase, usually for further sale, is effected. As per OEA, wholesale prices represent transactions at the primary stage, which broadly correspond to producer’s prices. In actual practice, the primary sales are not always held at ex-farm, ex-mines or ex-factory. Sometimes the sales are held ex-warehouses and in such cases the price quotations may include an element of the cost of transportation from the farm, mine or factory to warehouse. In certain trade transactions, the terms of delivery may include the cost of transportation up to the point of consumption. Thus, the WPI as presently compiled does not reflect either the producer price or market price in a consistent manner.
11.4.2 The commonly-used measure of inflation in the Indian economy is based on the WPI. As WPI measures the price change at the level of either the wholesaler or the producer and does not take into account retail margins, it thus represents the production side and not the consumption side. For a true measure of inflation, it is necessary to measure the changes in the prices only at the final stage of transaction.
11.4.3 It seems that the voluntary system of primary data collection on a weekly basis is becoming unsustainable as the economy changes its character and levers of control. Some of the criticisms against WPI are as under:
Divergent connotations of the concept of wholesale price
Changes in quality of products
Capturing shift in structure of economy
Non-inclusion of Services Sector
Weak price data collection mechanism
Inadequate measure of inflation
11.4.4 The quality of primary data used in the compilation of the WPI has been criticised at various forums especially with regard to non-response and timeliness. The working group on the revision of the WPI under the Chairmanship of Professor S.R.Hashim also felt that the present system of data collection through the mail method seems to be quite passive due to a significant proportion of non-response and delay in sending the data and thus recommended that there should be a direct system of data collection to eliminate such problems. In order to examine the response rate at the time of release of provisional and final WPI, the Commission requested the office of Economic Adviser in the Ministry of Industry to provide the basic data in respect of all the 1,918 quotations of 435 items for the last one year for making an appropriate analysis. Even after reminders, the data have not been provided by the Office of Economic Adviser.
11.4.5 Price changes in the Services Sector are not duly accounted for in the WPI, even though they are largely influenced by inputs from the Industrial Sector. Today, the Services Sector has developed to such an extent that a major share of the country’s GDP comes from this sector. The working group constituted for revision of WPI numbers has examined the issue of constructing a separate index for services. The group identified problems, which are likely to emerge such as availability of data on different services on a continuous basis, identifying services purchased by producers and services purchased by consumers, non-tradable services, etc. The group has recommended that a services index may be constructed by including financial intermediation (including banking, insurance, etc.), transport services (road and rail), communications (postal and tele-communication), water supply, electricity, gas and construction activity. Data on these services will have to be obtained from the concerned Government departments, private establishments and through specially-designed sample surveys. The Working Group on revision of WPI, has recommended that a Services Price Index should be developed, initially as a complement to the WPI. It should be merged with the WPI, once it has stabilised and established its robustness.
Conclusions and Recommendations.
11.4.6 The Commission, therefore, recommends that:
In order to obtain uniformity in the collection of wholesale price data, the Office of the Economic Adviser should explore the possibility of engaging exclusive staff for a weekly collection of price data. There should be a direct system of data collection to eliminate problems of non-response in the mail method.
An Expert Committee should be constituted to go into the quality aspects of WPI price data. To make the system transparent, the Office of Economic Adviser should make available detailed data to other Government agencies for official use.
To capture the recent changes in industrial structure on account of liberalisation and globalisation, there is a need to have periodic revisions of WPI numbers, preferably every five years but not later than ten years. The proposed revision should bring base years of WPI and CPI numbers much closer to each other.
A separate Services Sector Index should be developed, initially as a complement to the WPI. It should be merged with the WPI, once it has stabilised and established its robustness.
The Working Group on Services Sector Index constituted by TAC on SPCL should suggest institutional mechanism for collection of requisite data for the Services Sector Index and also its periodical updation. The Group should also take into account requirements of the WTO categories as also National Accounts.
As the present WPI is an inadequate measure of inflation; there is a need for a separate index for measurement of inflation in the economy. The proposed CPI for the rural and urban areas could be used for this purpose.