Much needs to be done to properly assess inflation

- An improvement in the Consumer Price Index is also long pending

The economy changes structurally over time. In developing countries like India, the pace of change is definitely faster. It is therefore imperative that policy makers understand the nature and pace of change so that timely policy interventions can take place. This is the reason why government departments related to data collection keep improving the methods of estimating economic activities and values. The government is in the process of changing the base year of inflation to 2018-19. The current base year is 2011-12. The proposed change will also help in understanding the changes in wholesale prices.

In addition to changing the base year, the government also intends to increase the scope and size of data collection. Commodities included in the index are expected to grow by about 30 per cent and the manufacturing group will expand significantly. The number of reporting entities related to each commodity in the index is also expected to increase significantly. The above changes will help improve the quality of the index. This will also help in real and more accurate assessment of growth. However, it is not clear why the government did not choose a more updated year to replace the base year. Moreover, at the broader level, much needs to be done to accurately measure changes in prices at different levels.

The wholesale price index serves only a limited number of purposes. It said India should move towards a more representative manufacturing price index, which would help businesses to measure price changes more accurately. It is an index that measures the change in the price of a good or service when it enters or exits the place of production. The wholesale price index, on the other hand, measures price at the level of wholesale transactions. This may include taxes and transportation costs, while the manufacturer's price index actually records the price the manufacturer receives. Such separate indicators can be established for raw materials and final production. In addition, the wholesale price index of services, despite being a significant part of the country's production, is not included. They can be included in the manufacturer price index. In such a situation, it seems appropriate to turn to the product price index to evaluate the change in price at the production level. In recent decades, many countries have adopted a system of productive price indices instead of wholesale price indices. In such a situation, the Government of India should also take such an initiative.

In this context, it is important to mention that the improvement in the Consumer Price Index is also long pending. This was also postponed due to the government's bias regarding the Consumer Expenditure Survey 2016-17. The next phase of the survey was affected by the epidemic. It has also been argued that the current fear does not reflect actual consumption. Since inflation based on the retail price index is an indicator of monetary policy, it is important that the index reflects the real state of consumer prices. In general, it is better for the government to change the base year of the WPI, but more needs to be done to properly assess inflation at various levels.