RBI Monthly Bulletin October 2010 2071 ARTICLE New Series of Wholesale Price Index Numbers (Base: 2004-05=100) New Series of Wholesale Price Index Numbers (Base: 2004-05=100)* * Prepared in the Statistical Analysis Division, Department of Statistics and Information Management. Previous article entitled ‘New Series of Wholesale Price Index Numbers (Base 1993-94=100)’ was published in RBI Bulletin June 2000. The Wholesale Prices Index (WPI) with base year 1993-94=100 reflected the structure of economy nearly 15 years ago. In order to adequately capture the current structure of the economy, Office of Economic Adviser, Ministry of Commerce and Industry, Government of India, shifted the base year of WPI to 2004- 05=100 from 1993-94=100. At the aggregate level, the price trend as well as inflation of new series is similar to those of the old series. However, there are a number of significant changes in the new series in terms of weighting diagram, coverage, and price collection mechanism. There is a reduction in the weight of 'Primary Articles' by 1.9 percentage points. On the other hand, weights of 'Fuel and Power' and 'Manufactured Products' have gone up by 0.7 percentage points and 1.2 percentage points, respectively. In terms of coverage, the number of commodities in the new series has gone up significantly to 676, as compared to 435 commodities of the earlier series. Further, in order to ensure a better representation of price, the number of price quotations has also increased significantly to 5,482 from 1,918 price quotations of the old series. Way forward, the latest WPI revision is a welcome development and will be better representative of overall inflation of the economy. The series on Index Numbers of Wholesale Prices with base 1993-94=100 had been in use since April 2000. As the WPI with base 1993-94=100 was not adequately reflecting the current structure of the economy, the Ministry of Commerce and Industry, Department of Industrial Policy and
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RBI
Monthly Bulletin
October 2010 2071
ARTICLE
New Series of Wholesale
Price Index Numbers
(Base: 2004-05=100)
New Series of WholesalePrice Index Numbers(Base: 2004-05=100)*
* Prepared in the Statistical Analysis Division,
Department of Statistics and Information Management.
Previous article entitled ‘New Series of Wholesale Price
Index Numbers (Base 1993-94=100)’ was published in
RBI Bulletin June 2000.
The Wholesale Prices Index (WPI)
with base year 1993-94=100 reflected the
structure of economy nearly 15 years ago.
In order to adequately capture the current
structure of the economy, Office of
Economic Adviser, Ministry of Commerce
and Industry, Government of India,
shifted the base year of WPI to 2004-
05=100 from 1993-94=100. At the
aggregate level, the price trend as well as
inflation of new series is similar to those of
the old series. However, there are a number
of significant changes in the new series in
terms of weighting diagram, coverage,
and price collection mechanism. There is
a reduction in the weight of 'Primary
Articles' by 1.9 percentage points. On the
other hand, weights of 'Fuel and Power'
and 'Manufactured Products' have gone
up by 0.7 percentage points and 1.2
percentage points, respectively. In terms
of coverage, the number of commodities
in the new series has gone up significantly
to 676, as compared to 435 commodities
of the earlier series. Further, in order to
ensure a better representation of price,
the number of price quotations has also
increased significantly to 5,482 from
1,918 price quotations of the old series.
Way forward, the latest WPI revision is
a welcome development and will be better
representative of overall inflation of the
economy.
The series on Index Numbers of
Wholesale Prices with base 1993-94=100 had
been in use since April 2000. As the WPI with
base 1993-94=100 was not adequately
reflecting the current structure of the
economy, the Ministry of Commerce and
Industry, Department of Industrial Policy and
ARTICLE
New Series of Wholesale
Price Index Numbers
(Base: 2004-05=100)
RBI
Monthly Bulletin
October 20102072
Promotion, Government of India, constituted
a Working Group for the revision of the WPI
series on December 26, 2003 under the
Chairmanship of Prof. Abhijit Sen, Member,
Planning Commission. Ever since the
introduction of the Wholesale Price Index
(WPI) on a regular basis, so far six revisions
have taken place introducing the new base
years, viz., 1952-53 (effective April 1956),
1961-62 (effective July 1969), 1970-71
(effective January 1977), 1981-82 (effective
January 1989), 1993-94 (effective April 2000)
and now 2004-05 (effective August 2010)1
. The
basic feature of any price index updation is to
adequately capture the current structure of the
economy, which is consistent with prevailing
price trend, preferences and consumption
pattern. In this context, revision of base of a
price index entails a shift of the reference year,
change in basket of commodities and
assigning new weights to commodities.
The Working Group was entrusted, inter
alia, with the task of examining commodity
coverage, selection of base year and
derivation of an appropriate weighting
diagram. The original terms of reference of
the Working Group included 17 critical
points. Some of the other relevant issues
included are selection of markets/centers/
sources for obtaining price quotations,
effective method of price collection,
treatment of seasonal items, addition of new
products gaining importance, adjustment for
changes in the quality of products,
construction of producer price index,
strengthening of computer network for price
data collection, etc. In order to facilitate in-
depth deliberations on different sectors, the
Working Group had set up four Sub-Groups
for the special tasks. These were the Sub-
Groups on ‘Analytical and other related
issues’, ‘Agricultural Commodities’,
‘Manufactured items’, and ‘Unorganised/
Unregistered Sector’. A majority of the
recommendations of these Sub-Groups
provided the basic foundation towards the
revision process. The Working Group
submitted its technical report in May, 2008.
At the time of submission of the Technical
Report, the commodity basket and quotations
for these commodities were not finalised
because of a poor response. The Working
Group, therefore, could not look into the
comparative picture of the prices in the
existing series and the proposed revision.
The Working Group, however, gave detailed
recommendations with regard to the choice
of base year, the method of selection of
items, preparation of weighting diagram and
collection of prices. Subsequently, the
Technical Advisory Committee (TAC) on
Statistics on Prices and Cost of Living (SPCL)
examined the new series of WPI with 2004-
05 as the base and endorsed the Working
Group recommendation of shifting the base
year from 1993-94 to 2004-05. Finally, the
Economic Advisory Council (EAC) to the
Prime Minister (PM) agreed with (a) shifting
the base year to 2004-05, (b) extending the
coverage in terms of number of commodities
and number of price quotations, (c) the
procedure adopted for selection of items, and
(d) the determination of the weighting
diagram.
1
Almost during the same period, the base years of
National Accounts Statistics (NAS) series have also
undergone change from 1948-49 to 1960-61 in August
1967, from 1960-61 to 1970-71 in January 1978, from 1970-
71 to 1980-81 in February 1988, from 1980-81 to 1993-94
in February 1999, from 1993-94 to 1999-2000 in January
2006, and from 1999-00 to 2004-05 in January 2010. Each
revision of series of WPI and NAS incorporated
improvements in methodology, coverage and quality of
price statistics and national accounts.
RBI
Monthly Bulletin
October 2010 2073
ARTICLE
New Series of Wholesale
Price Index Numbers
(Base: 2004-05=100)
Choice of base year
In determining the base year for any
index number, a set of well-known criteria
is followed. These include: (a) the base year
should be a normal year, i.e., a stable year
in respect of economic activities like
production, trade, etc.; (b) it should not
suffer from business cycles; (c) availability
of reliable price data for the selected year;
(c) the base year should be as recent a year
as possible so that by the time revised
series of items and their prices are
released, it should not have outlived its
utility; and (d) the base year for other
closely related economic indicators should
not be widely off the mark. Again, it is
acknowledged that it would be desirable to
choose a base year that is not out of date
or out of tune with the universe that it is
designed to present.
Ever since the revision of WPI to base
1993-94 in April 2000, base of a few other
macro indices were revised. The Consumer
Price Index of Industrial Workers (CPI-IW)
was revised to the base year 2001. The series
of National Accounts Statistics (NAS) was
revised with a base year of 1999-2000. The
series of IIP was being revised with reference
to the new base year 2000-01. The Sub-group
on organised manufacturing, after analysing
the Annual Survey of Industries (ASI) data,
recommended the year 2000-01 as the base
year. The Sub-group on Agriculture also
found that 2000-01 is a normal period for
agricultural items. So, initially 2000-01 was
selected as the new base for the WPI series.
But the test-run of the new WPI series with
base 2000-01 could not be undertaken in
view of the inadequate flow of price data
from the manufacturing units.
The ASI data is the primary source for the
selection of the product basket and
derivation of product level weights for the
manufacturing group of the WPI series. The
availability of the latest ASI data for the year
2004-05 was one of the major factors for
considering 2004-05 as the base year for the
new WPI series. The year 2004-05, being a
relatively recent year, the task of collection
of backlog price data from this year onwards
was expected to be more manageable.
Furthermore, it was a normal year, free from
any major economic upheaval. Also, it was
the year for NSSO quinquennial round on
consumption expenditure and
employment/unemployment which is likely
to form the base of various other statistical
series. Indeed, the base of NAS series is
already shifted to 2004-05 in January 2010.
Selection of Items/Varieties/
Markets
The new WPI series with base 2004-05
has 676 items in the commodity basket, out
of which 102 belong to ‘Primary Articles’
Group, 19 belong to ‘Fuel & Power’ Group
and remaining 555 items belong to
‘Manufactured Product’ group. On the other
hand, there were total 435 items in the
commodity basket of the WPI with base
1993-94, out of which, 98 were Primary
Articles, 19 were Fuel and Power items and
rest of the 318 items were Manufactured
Products.
The selection of items for the new series
was mostly based on the recommendations
of area specific Sub-Groups constituted by the
Working Group, which considered the
relative importance/share in total
transactions as the basis for selection of any
ARTICLE
New Series of Wholesale
Price Index Numbers
(Base: 2004-05=100)
RBI
Monthly Bulletin
October 20102074
item. For example, the selection of items in
the ‘Primary Articles’ Group (except the
minerals subgroup) was assigned to the Sub-
Group on Agricultural Items. The Analytical
Group was assigned the task of selection of
items in the ‘Fuel Group’ and ‘Minerals’ sub-
group of ‘Primary Articles’ group. The
selection of items in the organised and un-
organised manufactured sectors was assigned
to Sub-group on Manufactured Items and
Sub-group on Unorganised/Unregistered
Sector, respectively. The Sub-group on
Agricultural Commodities felt that there is
less scope of change in the composition of
the commodity basket in the agricultural
sector but suggested changing the number
of varieties of different commodities as well
as the relative importance of market centres.
The Analytical Sub-group also felt that there
was not much scope for change in the
product composition of the ‘Minerals’ sub-
group as well as the ‘Fuel and Power’ group.
The ‘Manufactured Products’ basket in the
1993-94 series included all products with
traded value of `120 crore and above. This
led to poor representation of some product
group. In order to remove the anomaly in the
selection method based on a uniform cut-off
criterion and make the method of selection
more representative, the Working Group
decided to adopt a method in which each
product group in the manufactured basket
gets represented by a number of items which
together cover at least 80 per cent of the
traded value at the group level. The National
Industrial Classification (NIC-98) in respect
of manufactured products has been retained
for the new series also.
In recent years, the contribution of
floriculture in the national income has
increased substantially. Therefore, it was
recommended by the Sub-group on
Agricultural Commodities to be includ in the
new series. Floriculture has been
incorporated in the ‘Non-Food Articles’ sub-
group of ‘Primary Articles’ group. Flowers
like rose, jasmine and marigold have been
included under floriculture.
In the 1981-82 series, crude petroleum
was included as an independent item in the
‘Minerals’ sub-group of the major group
‘Primary Articles’. However, it was dropped
from ‘Minerals’ sub-group in the series with
1993-94 base. The Analytical Sub-Group of
the Working Group for the new series
observed that the price of crude petroleum
could now be collected from the open market
which is interlinked with the international
market and is traded on a regular basis.
Further, the existing practice of imputing
crude oil weight to petroleum products leads
to an upward bias in ‘Fuel and Power’ group
index apart from the fact that the movement
of crude oil prices and the prices of
petroleum products may not be similar due
to ‘pass-on’ lag. Therefore, crude oil has been
included in the ‘Minerals’ sub-group of the
‘Primary Articles’ Group in new series.
Coverage of the Series
Initially, the Working Group
recommended the incorporation of 1,224
commodities in the new WPI series
(base=2004-05). However, because of
various practical problems like availability
of data, regular flow of price data, etc., the
final basket of the new WPI was trimmed
to 676 commodities, which itself is much
bigger than the old WPI basket of 435
commodities. Further, to get a better price
representation, the number of price
RBI
Monthly Bulletin
October 2010 2075
ARTICLE
New Series of Wholesale
Price Index Numbers
(Base: 2004-05=100)
quotations has also increased significantly
to 5,482 from 1,918 price quotations of the
old WPI series. In the new WPI series, the
number of price quotations per
commodities is almost doubled to 8.1
quotations per commodity from 4.4
quotations per commodity of the old series.
A comparative statement of the number of
commodities/number of quotations at major
group and group level in the new as well as
the earlier series is presented in Table 1 and
graphically represented in Charts 1 to 4.
At the major group level, the number of
commodities in ‘Manufactured Products’
increased significantly to 555 in the new
WPI series from 318 commodities of the old
series. This increase has resulted from the
increase in commodities of all the 12 sub-
groups of ‘Manufactured Products’. As
expected, the number of commodities in
‘Primary Articles’ has increased marginally
Table 1: Number of Commodities and Price Quotations at Major Group/Group Level in
the Old and the New Series (2004-05=100)
Major Group/Group Number of Commodities Number of Price Quotations