Govt plans major revamp of IIP, WPI to make them more realistic: report

The government is undertaking a major revamp of the two main economic indicators, the Index of Industrial Production and the Wholesale Price Index, in order help them present a more realistic picture of the economy.

The IIP is based on the output growth of various industrial sectors such as mining, electricity and manufacturing while the WPI is based on the wholesale prices of a representative basket of goods used as a key measure of inflation.

The IIP and the WPI will have a revised product list and the base year will be fixed anew.

The changes, based on the suggestions made by a high-level committee headed by Saumitra Chaudhuri, member of the Planning Commission and prime minister's economic advisory council.

''The effort is to make the two indices more realistic,'' Business Line quoted Chaudhuri as saying.

The committee submitted its report on the IIP last week and on the WPI a couple of weeks ago.

The committee has suggested factoring in the price of manufactured goods without the excise duty component for calculating WPI.

Currently, WPI is calculated on the basis of price plus excise duty minus premium or discount.

But, according to the recommendation, it will be price minus premium or discount.

For both WPI and IIP, the panel has suggested a change in the base year initially to 2009-10 and subsequently to 2011-12.

The current base year for both the indices is 2004-05. The base year value is taken as 100 and the changes are calculated accordingly.

On the IIP, the committee has suggested updating the product mix annually to record changes in production trends.

Chaudhuri said the change in methodology will also help in using the WPI to deflate the value of output in the IIP, thus capturing the real rise in production.

Taking the price without the tax component is significant, as manufactured products have a weightage of 64.97 per cent in the WPI and 75.53 per cent in the IIP.

This approach will help policy-makers and the Reserve Bank get a better fix on real improvements in the industrial sector.

The WPI also tracks prices in the wholesale market and determines the direction of interest rates. Both sets of data are released on a monthly basis.

However, IIP data comes with a one-month lag, while there is virtually no lag in the WPI numbers.