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The CPI and IIP are beset with distortions
| Photo Credit:
Maximusnd
In a recent interview to this newspaper, Minister of State for Statistics and Programme Implementation Rao Inderjit Singh said that a new series for GDP, IIP (index of industrial production) and CPI (consumer price index) would be released in about a year’s time. The base year will move from 2011-12 to 2022-23 in the case of GDP and IIP, and from 2012 to 2024 in the case of CPI.
In addition, the composition of CPI (407 items) and IIP (over 830 items) will undergo a revision as well, with weights being changed, new items introduced and presumably outmoded ones eliminated. Output and price indices need to be adjusted periodically, and more frequently perhaps than once in a decade, to align with structural changes in the economy. The CPI and IIP are beset with distortions. As per the Minister, the weights in CPI will be adjusted in accordance with the findings of the Household Consumer Expenditure Survey 2023-24. In that case, weights for cereals in the CPI may be reduced, as HCES points to monthly per capita expenditure of 4 per cent (of total expenditure) on cereals in urban India and 5 per cent in rural India, against the CPI’s cereals weight of 12.35 per cent and 6.59 per cent for rural and urban areas, respectively.
What complicates matters is the free food component, which has been ‘imputed’ in the HCES, for which prices should be zero. If cereals inflation is overstated, it is possible that eggs, milk and milk products, beverages and fruit are underestimated. There is also the issue of collecting price data for online and offline transactions. Unchanged expenditure weights over time do not capture price elasticity. In the case of IIP, its composition of over 830 items does not capture technological changes. The use of the wholesale price index to convert production values into physical quantities implies that the WPI too requires scrutiny. The use of 2022-23 as a base year seems, on balance, a reasonable choice for GDP series and IIP, but it is odd that 2024 will be the base year for CPI.
Ideally, the three indices should have the same base year for easy comparison of output, investment (the new capex survey will make a difference), prices and employment (monthly labour data) data. Yet, FY23 was a relatively normal year, after two preceding abnormal years thanks to Covid. It recorded a growth rate of 7.6 per cent and a slightly high inflation rate of 5.4 per cent. But this could look different once the revised series is released. On the GDP figures, there is an old debate over whether Ministry of Corporate Affairs database accurately estimates organised sector output, even as data on unorganised sector has improved with the Annual Survey of Unincorporated Enterprises. The use of GST data should help overcome many data gaps, especially in services. The Annual Survey of Industries must be given due importance. Finally, the series revisions will, hopefully, put a stop to years of wrangling over data quality. The use of technology to gather and update data can make a difference.
Published on June 24, 2025
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