Revision of base year of All-India Wholesale Price Index (WPI) from 2004-05 to 2011-12.

Revision of base year of All-India Wholesale Price Index (WPI) from 2004-05 to 2011-12.

                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. The  composition and  terms  of  reference of  the  Working Group is at Annex 1.

Key Highlights

                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%).

New Features

•        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:

Major Group	Weights		No. of Items		No. of Quotations
	2004-05	2011-12	2004-05	2011-12	2004-05	2011-12
ALL COMMODITIES	100.00	100.00	676	697	5482	8331
PRIMARY ARTICLES	20.12	22.62	102	117	579	983
FUEL & POWER	14.91	13.15	19	16	72	442
MANUFACTURED PRODUCTS	64.97	64.23	555	564	4831	6906

          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.

Primary Articles

          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:

•        Non-Coking Coal G1 to G6 [GCV > 5500 Kcal/kg.]

•        Non-Coking Coal G7 to G14 [GCV 3100 Kcal/kg to 5500 Kcal/kg]

•        Non-Coking Coal G15 to G17 [GCV < 3100 Kcal/kg.] The item coke has been dropped.

          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.

Manufactured Products

          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.

Technical Review Committee

          In order to address important technical issues such as substitution of source of data, change in specification of products and other data/methodological issues which require continuous review on a dynamic basis so that the new WPI  series remains  relevant till the  life  of  the  series, an  institutional mechanism has been established for the first time for facilitating seamless substitution of dormant source, dynamic revision of item list of products and the panel of factories through Technical Review Committee (TRC) chaired by Secretary, Department of Industrial Policy & Promotion. This committee will meet at least once a year for inter-alia recommending methodology for improving the coverage and quality of WPI like identifying  new items that need to be included in the item basket and removing those that have lost its relevance or are no longer being produced. The composition of the TRC is at Annex 2.

Index numbers and Inflation rate

          Based on the monthly price data provided by the source agencies the month- wise indices and inflation rates have been worked out. The monthly indices for the new series with base 2011-12 from April 2012 through March 2017 at

the  Major  Group  level  are provided at  Statement  I.  The  month-wise comparative inflation rates at the Major Group level for the WPI series with base 2011-12 vis-à-vis 2004-05 are provided at Statement II. The annual average inflation  rates at the Major  Group  level for both  the series are provided at Statement III.

Linking Factor

            In view of the conceptual and methodological difference between the  2004-05 and 2011-12 series, the estimate of linking factor will vary depending  on the type of method used. Therefore, users are free to choose any method as may be considered appropriate by them. However, as in the past, in order to maintain  continuity in the time series data on wholesale price index, the linking factor using the arithmetic conversion method for All Commodities and the three major groups of WPI are given in the Table below.

	WPI (Base2004-05)  for 2011-12	Linking Factor
All Commodities	156.1	1.561
Primary articles	200.3	2.003
Fuel & Power	169.0	1.690
Manufactured Products	139.5	1.395

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.