Comparing the WPI 1993-94 series with 2004-05 series

Though, RBI ED Deepak Mohanty does a super job explaining the two series, there is always scope for improvement.

RBI’s Oct-10 Bulletin has  an excellent primer on the topic. It has a nice discussion on 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 Again, it is acknowledged that it would be desirable to choose a base year that is not out of date or out of tune with the universe that it is designed to present.

So why was 2004-05 picked?

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.

The authors point to changes in the indices and also mention new items that have been included. For instance, flowers have been added to this new list as there is huge consumption demand for them. So we have rose, jasmine and marigold in the new series.

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’….

Overall the authors are happy that we have a new series. Though, it says the base years should be changed more frequently:

During recent years, the structure of 0f 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.

Great stuff from RBI. RBI Bulletin used to be boring. Now it has some decent research pieces.

5 Responses to “Comparing the WPI 1993-94 series with 2004-05 series”

  1. Pradeep Simha Says:

    Sir,

    Really great work. This helps us for preparing many competitive exams and also in improving our GK.

    Thanking You.

  2. swapan k das gupta Says:

    AV INDEX NO WPI OF FUEL,LIGHT & LUBRICANT IS 342.9 FOR AUGUST’2009 WITH BASE 1993-94=100. WHAT WILL BE THE INDEX VALUE FOR THE SAME BASE FOR MAY’2010,JUNE’2010,JULY2010 & AUGUST’2010

  3. Shivanand Samant Says:

    What is the correlation between the 93 series & 2004 series?

  4. swapnil Says:

    how to make base equivalent i.e. how to make 199-94 base equivalent to 2004-05

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