The release of the new consumer indices by the Central Statistical Organisation (CSO) is a landmark event in the evolution of the price statistics in India. It would provide a new and more useful tool for measuring inflation and guiding monetary policy. The three indices, namely rural, urban and combined, have taken rather long in the making, taking more than a decade after the National Statistical Commission (NSC) recommended these in 2001. The reason for the changeover were the major lacunae in the four existing consumer price indices, that for urban non-manual employees, industrial workers, rural labour and agriculture labour, which measured changes in the price of goods and services consumed by specific segments of the population and did not provide any data on the price changes at a macro level, either in the rural or urban sectors. Though the CSO has used the consumer expenditure survey conducted in 2004-05 for estimating the weights, the mandate is to re-estimate it every five years. And the results are more comprehensive. The new indices give numbers on the changes in the consumer prices of five product groups and 21 sub-groups in the rural, urban and combined areas at both the national level and in the 35 different states and union territories, as against the measurement of the trends in urban and the major industrial and agriculture areas under the earlier indices. But the new series will take at least a year to stabilise as the some of the states could not be fully covered even after the long gestation period, only after which the annual inflation rates would be computed for the new series on a regular basis.
Apart from the organised sector employees, whose dearness allowance is tied to the changes in the consumer price levels, the biggest gainer from the new improved indices will be RBI. The multiplicity of price indicators has made the choice of the primary inflation indicator a difficult task for the Indian central bank. Though the headline inflation index is the WPI in India, the favoured inflation indicator the world over are consumer price numbers. And the large diversity between the WPI and CPI in the recent period have made the scenario even more complex as the limitations of the data made the the policy analysis rather ambiguous. The new indices would also bring Indian price indicators closer to the indicators used by the Federal Reserve Board of the US, which primarily focuses on the CPI-U (a CPI for all urban consumers), which covers around 87% of the total population.
The 2010 base for the CPI does have a problem in the sense that the CPI is now lower than the WPI?the January food inflation according to WPI is 15% while the new CPI suggests inflation was a more manageable 6%. These differences in the indices need to be kept in mind while taking policy decisions.
