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New Series of Wholesale Price Index Numbers (Base: 2004-05=100)

New Series of Wholesale Price Index Numbers (Base: 2004-05=100)*

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 200405=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
RBI Monthly Bulletin October 2010

* 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.

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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
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 197071 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 NA S incorporated improvements in methodology, coverage and quality of price statistics and national accounts. RBI Monthly Bulletin October 2010

changes in the quality of products, construction of producer price index, strengthening of computer network for price data collection, etc. In order to facilitate indepth deliberations on different sectors, the Working Group had set up four Sub-Groups for the special tasks. These were the SubGroups 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 200405 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.

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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
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item. For example, the selection of items in the Primary Articles Group (except the minerals subgroup) was assigned to the SubGroup on Agricultural Items. The Analytical Group was assigned the task of selection of items in the Fuel Group and Minerals subgroup of Primary Articles group. The selection of items in the organised and unorganised 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 subgroup 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
RBI Monthly Bulletin October 2010

recommended by the Sub-group on Agricultural Commodities to be includ in the new series. Floriculture has been incorporated in the Non-Food Articles subgroup 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

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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 subgroups of Manufactured Products. As expected, the number of commodities in Primary Articles has increased marginally

to 102 from 98 commodities of the old series. However, the commodity basket of Fuel & Power remained at the level of the old WPI series. Further, in new WPI series, the number of price quotations for Primary Articles and Manufactured Products have increased to 579 and 4,831, from 455 and

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 All Commodities I. Primary Articles Food Articles Non-Food Articles Minerals II. Fuel and Power III. Manufactured Products Food Products Beverages, Tobacco and Tobacco Products Textiles Wood and Wood Products Paper and Paper Products Leather and Leather Products Rubber and Plastic Products Chemicals and Chemical Products Non-Metallic Mineral Products Basic Metals, Alloys and Metal Products Machinery and Machine Tools Transport Equipments and Parts Number of Commodities 1970-71 1981-82 1993-94 360 80 39 26 15 10 270 37 8 12 4 4 4 7 67 21 42 35 21 447 93 44 28 21 20 334 35 7 27 2 11 3 13 77 22 57 44 22 435 98 54 25 19 19 318 41 11 29 2 11 1 15 69 9 53 56 21 676 102 55 29 18 19 555 57 15 55 10 18 13 45 107 26 69 107 33 Number of Price Quotations 1981-82 1993-94 2,371 519 320 132 67 73 1,779 231 39 120 14 74 26 73 428 125 235 266 118 1,918 455 340 96 19 72 1,391 168 49 100 9 67 9 55 276 42 203 312 101 2004-05 5,482 579 431 108 40 72 4,831 406 102 457 64 138 91 351 1,111 225 696 903 287 1,295 411 264 115 32 30 854 117 19 99 13 16 18 42 182 63 125 104 39 2004-05 1970-71

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1,391 of old series, respectively. However, the number of price quotations for Fuel & Power remained same at 72 of old series. In the new WPI basket, there are 259 commodities (91 commodities of Primary Articles, 19 commodities of Fuel & Power and remaining 149 commodities are from Manufactured Products) which are retained from the old WPI basket. However, there are 417 commodities which are new/revised in the new WPI commodity basket. At major group level, Primary Articles got 11 new/

revised commodities like lemon, rose, jasmine, etc. As indicated earlier, crude petroleum, which was dropped from the 1993-94 WPI commodity basket, is again incorporated in the new WPI basket under Minerals. The commodity basket of Fuel & Power is kept the same as old WPI series. Most significantly, however, as many as 406 new/revised commodities have been included in the Manufactured Products, of which 25 commodities (e.g., ice cream, processed prawn, rice bran, palm oil, cashew kernel, etc.) belongs to Food Products, six commodities (e.g., IMFL-Blended, soft drink concentrates, non-alcoholic beverages, etc.) belongs to Beverages, Tobacco & Tobacco Products, 38 commodities (e.g., cotton shirts, cotton yarnbleached/unbleached, terene garments, etc.) belongs to Textiles, nine commodities (e.g., sawn timber posts/ squares, plywood board, etc.) are from Wood & Wood Products, nine commodities (e.g., corrugated sheet boxes, paper cartons/boxes, etc.) are from Paper & Paper Products, 13 commodities (e.g., vegetable tanned leather, leather shoe upper, footwear/safety boot, etc.) are from Leather & Leather Products,

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35 commodities ( e.g., polyester film, rubber seat assembly, plastic films & sheets, scooter/ motor cycle tyre, tooth-brush, etc.) belongs to Rubber & Plastic Products, 83 commodities (e.g., petrochemical building blocks, polymers, di-ammonium phosphate, thermocol, etc.) are from Chemicals & Chemical Products, 23 commodities (e.g., bricks & tiles, stone, grey cement, etc.) are from Non-Metallic Minerals Products, 49 commodities (e.g., sponge iron, pig iron, pencil ingots, HRC, etc.) are from Basic Metals, Alloys & Metal Products, 84 commodities (e.g., harvester, transformer, lifts, refrigerators, watches, battery charger, washing/laundry machines, video CD players, computers, etc.) are from Machinery & Machine Tools and remaining 30 commodities (tractors, bus/mini bus/truck, motor vehicles, etc.) are from Transport, Equipments & Parts. Overall, commodity groupings in the new series have been extensively rationalised.

Weighting Diagram
The major challenge in deriving the weighting diagram was the need to ensure

representation of the overall price movements in the economy and including these at disaggregated levels with the available number of items and quotations. The impending task, therefore, was to secure a sample that represents the underlying universe adequately. Besides, these weights would carry over to the middle of the next decade and hence a futuristic outlook on the weighting diagram was absolutely imperative. The weighting diagram for the new WPI series has been derived on the basis of Gross Value of Output (GVO). The Working Group has derived the weights at the Major Group level on the basis of aggregate values of transactions, which consist of: (a) value of marketed surplus in the case of domestic agricultural products and Gross Value of Output in the case of domestic nonagricultural products, and (b) value of net imports, i.e., value of traded imports minus value of direct exports. The output values at current prices, wherever available at appropriate disaggregation, have been obtained from the NAS, 2007 published by the Central Statistics Office (CSO), Ministry
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of Statistics & Programme Implementation. The same have been reallocated and aggregated to conform to the structure of WPI basket. A comparative statement of the weighting diagrams of the new series and the old series at major group levels is presented in Table 2 and graphically represented in Charts 5(a)-5(b). As expected, there is a decline in the weight allotted to the Primary Articles but only by about 1.9 percentage points which was 10.3 percentage points in the 1993-94 base
Table 2: Comparative Statement of the Weighting Diagram at Major Group/Sub-Group Level of the Old Series (Base: 1993-94=100) and the New Series (Base: 2004-05=100)
Major Group/Group Weight 1993-94 All I i ii iii II i ii iii III i ii iii iv v vi Commodities Primary Articles Food Articles Non-Food Articles Minerals Fuel and Power Coal Mineral Oils Electricity Manufactured Products Food Products Beverages, Tobacco Textiles Wood and Wood Products Paper and Paper Products Leather and Leather Products vii Rubber and Plastic Products viii Chemicals and Chemical Products ix Non-Metallic Mineral Products x Basic Metals, Alloys and Metal Products xi Machinery and Machine Tools xii Transport Equipments and Parts 100.000 22.025 15.402 6.138 0.485 14.226 1.753 6.987 5.484 63.749 11.538 1.339 9.800 0.173 2.044 1.019 2.388 11.931 2.516 8.342 8.363 4.295 2004-05 100.000 20.118 14.337 4.258 1.521 14.910 2.094 9.364 3.452 64.972 9.974 1.762 7.326 0.587 2.034 0.835 2.987 12.018 2.556 10.748 8.931 5.213 Change over old series 0.000 -1.907 -1.065 -1.880 1.036 0.684 0.341 2.377 -2.032 1.223 -1.564 0.423 -2.474 0.414 -0.010 -0.184 0.599 0.087 0.040 2.406 0.568 0.918

compared to 1981-82 base. The fall is mainly attributed to the fall in the weights of Food Articles and Non-Food Articles. Weight of Fuel and Power has gone up marginally by 0.7 percentage points; Mineral Oils group recoded an increase of 2.4 percentage points. Weight of Manufactured Products has gone up by more than 1.2 percentage points. Major upward revision took place in Basic Metals, Alloys and Metal Products, where the weight has increased by 2.4 percentage points. On the other hand, weights of Food Products and Textiles are revised downwards by 1.6 and 2.5 percentage points, respectively.

New Series and Old Series A Comparison

Movement of Y-o-Y Inflation based on new series vis--vis the old series at major group-level is presented at Chart 6. In addition, annual inflation rates for the new series and the old series, both on average and point-to-point basis, are presented in Table 3. It is evident that these two series do not differ much, suggesting that the

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Table 3: Rate of Inflation based on the Old Series (Base: 1993-94=100) and the New Series (Base: 2004-05=100)
Year Average Basis 1993-94 series 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11* 4.42 5.43 4.66 8.41 3.85 7.34 2004-05 series 4.35 6.51 4.82 8.03 3.57 6.92 Point-to-point Basis 1993-94 series 3.91 6.61 7.48 1.20 11.04 4.06 2004-05 series 3.94 6.82 7.72 1.48 10.23 3.31

of Manufactured Products have shown decline in growth rate. All other subgroups have shown increase in growth rate of varying magnitude. However, at the overall level, the comparison suggests that the new series is able to comprehend the price movements as observed in the old series and price variations between the two series are due to structural changes taking place in the economy.

* Calculated on the basis of available data up to August, 2010.

new series can be a representative of the price variation captured in the old series (Table 4). The compound growth rate for 2009-10 over 2005-06 for the major commodity groups has been worked out to assess the overall price rise as per the old and new series (Table 5). In the Minerals sub-group of Primary Articles, Electricity sub-group of Fuel & Power and Food products, Beverages, tobacco and tobacco products, Textiles, Paper & paper products, Rubber & rubber products, Chemical & chemical products and Machinery and machine tools sub-groups

Analytical and Methodological Changes

There are a number of agricultural commodities, especially, some fruits and vegetables, which are seasonal in their availability and whose prices are quoted only during a particular period of the year. Traditionally, such seasonal items are handled in the index in a special manner. When a particular seasonal item disappears from the market and its prices cease to get quoted, the index for such an item ceases to be compiled and its weight is distributed over the remaining items within the concerned sub-group on a pro-rata basis. This system
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has been in practice in all the previous series and will be continued in the revised series also, with a clear delineation of the specific period during which the index of a particular seasonal item will be compiled.

The WPI with base year 1993-94 had included the PDS price quotations for wheat and rice. The Working Group was of the opinion that since they did not represent the first point of sale, these may not be

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Table 4: Comparative Statement of the Annual Indices based on the Old Series (1993-94=100), Shifted to the base 2004-05=100 and the New Series (2004-05=100)
Major Group/ Group 2005-06 93-94 series All I. i. ii. iii II. i. ii. iii. Commodities Primary Articles Food Articles Non-food Articles Minerals Fuel & Power Coal Mineral Oils Electricity 104.4 102.9 104.8 95.5 126.5 109.5 103.7 113.9 104.1 103.1 101.1 104.9 95.5 108.4 102.2 107.1 103.4 103.6 107.8 107.4 105.1 103.7 04-05 series 104.4 104.3 105.4 96.7 115.2 113.6 117.6 116.7 102.6 102.3 101.2 104.7 98.9 105.7 103.6 104.3 101.9 103.8 103.4 101.4 103.6 102.7 2006-07 93-94 series 110.1 110.9 113.0 100.4 162.1 115.6 103.7 122.9 107.4 107.7 104.4 112.6 97.5 114.9 109.2 102.4 110.2 106.7 121.6 114.8 111.0 105.3 04-05 series 111.2 114.3 115.5 102.3 136.6 120.9 117.7 127.4 105.3 108.0 106.5 110.0 100.8 111.9 108.4 112.5 107.6 108.9 115.4 110.3 110.1 105.0 2007-08 93-94 series 115.2 119.4 119.2 113.1 183.6 116.7 106.5 124.1 107.9 113.0 108.8 124.1 96.5 120.3 111.2 106.7 118.1 112.7 132.4 122.7 118.8 108.1 04-05 series 116.5 123.9 123.6 114.4 152.8 121.0 121.7 126.3 106.2 113.3 110.3 117.2 101.5 119.4 111.6 116.0 112.2 112.8 128.3 122.4 114.1 107.6 2008-09 93-94 series 124.9 131.4 128.7 125.7 247.6 125.4 113.5 137.8 109.0 122.2 119.7 136.0 102.3 130.3 116.1 107.9 123.6 120.8 137.3 140.4 124.4 113.8 04-05 series 125.9 137.5 134.8 129.2 186.5 135.0 151.3 141.8 106.4 120.2 119.9 128.3 103.2 130.7 116.3 122.3 117.3 118.1 131.7 137.0 117.4 113.3 2009-10 93-94 series 129.7 145.9 147.7 131.6 238.5 122.4 117.8 131.3 109.7 126.1 139.7 143.0 108.7 133.2 117.0 106.6 126.5 126.1 140.4 126.8 124.3 113.9 04-05 series 130.4 154.9 155.4 136.2 202.9 132.1 156.5 135.8 107.4 122.4 136.1 136.2 106.7 143.3 118.9 128.4 118.2 117.8 140.9 125.6 118.0 116.8 2010-11* 93-94 series 139.4 162.4 159.5 152.5 323.0 134.5 127.9 146.6 116.9 132.2 140.0 150.2 120.9 151.8 118.4 106.6 134.4 132.0 139.7 140.6 128.2 116.7 04-05 series 139.4 174.8 174.0 152.3 244.9 144.6 163.0 152.1 112.9 127.2 137.6 143.7 115.2 148.1 122.1 128.0 123.1 122.4 144.4 134.5 120.4 120.2

III Manufactured Products i. Food Product ii. Beverages, etc. iii. Textiles iv. Wood & prod. v. Paper & prod. vi. Leather & prod vii. Rubber & prod viii. Chem. & prod ix. Non-Metallic x. Basic Metals, etc xi. Machinery, etc xii. Transport, etc.

*: Calculated on the basis of available data (up to August, 2010).

included. In view of this, the Working Group decided to include the procurement prices of paddy and wheat, which in a way represent the first point of sale in the price quotations for wheat and rice. Such analytical change is likely to create sudden spurt in wheat and rice price, especially during the month of procurement like October, when actual procurement by government takes place. There is no change in the method of compilation of the index in the revised series. It is calculated on the principle of weighted arithmetic mean, according to the Laspeyres formula, which has a fixed baseyear weighting diagram operative through

the entire life span of the series. Price relatives are calculated as the percentage ratios, which the current prices bear to those prevailing in the base period, i.e., by dividing the current price by the base period price and multiplying the quotient by 100. The commodity index is arrived at as the simple arithmetic average of the price relatives of all the varieties included under that commodity. The indices for the sub-groups/groups/major groups/all commodities are, in turn, worked out as the weighted arithmetic mean of the indices of the items/sub-groups/groups/ major groups falling under their respective heads.

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Table 5: Inflation Rate (Compound Growth Rate) Based on the Old and New Series at Major Groups and Sub-Group Levels
Major Group/Group Weights 1993-94 series 2004-05 series WPI (base: 1993-94=100) 2005-06 2009-10 Compound Growth Rate (in %) 5.57 9.12 8.95 8.33 17.17 2.83 3.24 3.60 1.33 5.16 8.42 8.05 3.30 5.28 3.45 -0.14 5.17 5.04 6.84 4.23 4.27 2.39 WPI (base: 2004-05=100) 2005-06 2009-10 Compound Growth Rate (in %) 130.39 154.94 155.39 136.21 202.92 132.10 156.45 135.75 107.40 122.40 136.08 136.18 106.73 143.28 118.86 128.35 118.19 117.76 140.85 125.63 117.98 116.82 5.72 10.40 10.20 8.95 15.22 3.85 7.40 3.85 1.16 4.59 7.69 6.80 1.91 7.89 3.49 5.34 3.78 3.21 8.03 5.49 3.31 3.27

All Commodities I. i. ii. iii. II. i. ii. iii. III. Primary Articles Food Articles Non-food Articles Minerals Fuel & Power Coal Mineral Oils Electricity

100.00 22.03 15.40 6.14 0.48 14.23 1.75 6.99 5.48 63.75 11.54 1.34 9.80 0.17 2.04 1.02 2.39 11.93 2.52 8.34 8.36 4.29

100.00 20.12 14.34 4.26 1.52 14.91 2.09 9.36 3.45 64.97 9.97 1.76 7.33 0.59 2.03 0.84 2.99 12.02 2.56 10.75 8.93 5.21

195.56 193.59 195.28 179.14 322.77 306.83 231.60 359.77 263.38 171.43 176.83 226.83 129.51 194.57 178.46 166.77 139.13 188.23 169.98 218.37 147.40 159.88

242.94 274.53 275.11 246.75 608.41 343.09 263.10 414.51 277.67 209.63 244.32 309.11 147.46 239.05 204.36 165.87 170.18 229.10 221.45 257.73 174.22 175.73

104.38 104.30 105.38 96.68 115.15 113.58 117.60 116.73 102.57 102.28 101.19 104.66 98.94 105.74 103.63 104.25 101.91 103.79 103.41 101.44 103.58 102.69

Manufactured Products i. Food Product ii. Beverages, etc. iii. Textiles iv. Wood & prod. v. Paper & prod. vi. Leather & prod vii. Rubber & prod viii. Chem. & prod ix. Non-Metallic Mineral prod. x. Basic Metals, etc xi. Machinery, etc xii. Transport, etc.

Frequency and Release of the new WPI Index

The Working Group had detailed deliberations on the issue of switching over to a monthly index in the new series, as is the practice in other countries, especially against the background that the existing compilation of the index on a weekly basis leaves little time and scope for monitoring the flow of price data from the manufactured units. The index was, therefore, compiled on a low response rate in respect of price quotations from the manufactured units. It was generally agreed that switching over to a monthly index
RBI Monthly Bulletin October 2010

would improve the quality of the index, since a longer period shall give scope to improve response rate through better scrutiny and follow-up. In fact, the National Statistical Commission, which made a review of the existing flow of data on a weekly basis for compilation of WPI was of the opinion that the response rate could be substantially increased if the Index is switched over from the existing weekly to monthly frequency. However, finally a hybrid (mix of both weekly and monthly) frequency was chosen: for Primary Articles and Fuel and Power, it is compiled on a weekly basis, and for Manufactured Products, the index is compiled on a

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monthly frequency. This shift in compilation, though recommended by the Working Group for 2004-05 revision, was effected in the 1993-94 series itself since October 24, 2009. Release calendar of the new series of WPI is as follows: the monthly release of the WPI would be on 14th of each month (if 14th happens to be a holiday, the WPI would be released on the next working day); weekly release of WPI for the primary articles and the articles in the broad group (fuel & power) would be released on Thursday (if Thursday happens to be a holiday, it would be released on next working day) with a gap of two weeks.

comprising the Primary Articles and the commodities in the broad group of Fuel & Power, are sourced from Government Departments, the revision is often significant and widespread. In Manufactured Products, while the index is shifted from a weekly release to monthly release, there has always been a lag in response for some commodities. It is difficult to point out a particular commodity in this regard because these have been shifting over time. The average difference between provisional and final index appears to have increased in 2008-2010 and both the Primar y Articles and articles in Manufactured Products have contributed to this widening of the difference. However, the contribution of primary sector has been significantly higher than the manufacturing sector. For All Commodities, it is observed that during 2000-09, there have been weeks where the final index has been lower than the provisional index indicating that revised final numbers are not necessarily higher at all times.

Provisional vs. Final Index

The weekly/monthly index of wholesale prices at the time of its initial compilation and release is provisional in nature because it does not take into account some of the price quotations that are received belatedly. In such cases, the prices of the missing quotations are either repeated or estimated, depending on the nature of the commodity. The provisional index is made final after a period of eight weeks/two months by which time almost all the required price quotations are expected to have become available. There has, of late, been a concern for widening of difference between the provisional and final index of the Wholesale Prices. Since the provisional numbers are released first, the final numbers do not get the kind of attention the provisional numbers get. Widening gap also creates credibility concerns. As mentioned earlier, WPI is released within two weeks of the reference week. The weekly series, therefore, has very little time and is more susceptible to revision. Though the data for the weekly series,

Conclusion
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
RBI Monthly Bulletin October 2010

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New Series of Wholesale Price Index Numbers (Base: 2004-05=100)

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. During recent years, the structure of Indian economy has been changing at a great pace due to technological revolution, globalisation and demographic factors. Many dynamic sectors of the economy, including manufacturing, financial services, information technology, trade, transport and

communication have grown faster and are influencing strongly their market size and, hence, their traded value. Therefore, it is imperative that the price series is revised more frequently for adequately capturing the current structure of the economy, which is consistent with price trend and consumption pattern. While ideally a frequent revision is desirable, practice of quinquennial revision is suggested internationally. In this context, way forward, the latest WPI revision to the base 2004-05=100 is a welcome development and will be better representative of overall inflation of the economy.

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RBI Monthly Bulletin October 2010