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Posts Tagged ‘consumer affairs

Expanding India’s WPI, neglecting its CPI

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There are some 130 food items in the proposed WPI whereas the retail price collection basket with the most items has only 46.

There are some 130 food items in the proposed WPI whereas the retail price collection basket with the most items has only 46.

The Planning Commission is to agree by the end of 2014 March on the composition of an expanded set of items for the wholesale price index. The expanded index – with a few new categories and some reclassifications – is a proposal, formally, by the Office of the Economic Adviser, Ministry of Commerce and Industry.

But there are retail wheels within wholesale ones, and there are indications provided by the financial and business press that it is the Prime Minister’s Office that is backing the revision – which will also allow the Reserve Bank of India to make decisions about interest rates that could benefit industry.

My interest was drawn to the several additions that have been made to the category of ‘food articles’ (some of which has been covered by media reportage, which quite typically has ignored the changes proposed in the rest of the categories). More important than these few changes to the components of wholesale food price are the additions made under the ‘manufactured products – food products’ category.

This is a greater expansion of items (although the weightages for the new items have not yet been made public) and reflects the shift in what is being purchased by households – more packaged and processed food in place of raw cereals, pulses, fruit and vegetables. The expanded list also signals the dietary shift – a nutritional time-bomb whose effects can already be seen in the rising rates of youth becoming overweight – towards processed cereals, sugary drinks, edible oils, and snack foods.

The tall and narrow chart you see here shows the difference between the sets of items covered by the proposed new WPI and the current sets of items that are monitored for consumer retail prices. The three sets that do this are from: (1) the Ministry of Agriculture, Directorate of Economics and Statistics, (2) Ministry of Labour and Employment, Labour Bureau, and (3) Ministry of Consumer Affairs, Food and Public Distribution, Department of Consumer Affairs.

This is the second expansion in the number of items that make up the WPI in the last three years, whereas the relatively much smaller list of items that are used to monitor the prices of food for consumers has remained the same over the same period (the last revision was about five years ago in the Ministry of CAF&PD system).

As usual, there is little or no public discussion on the additions to the WPI and the continuing neglect of the items that are used to compute the consumer price index – some of those collection systems are 30 years old. The proposed expansion of the WPI food and food-related items will deepen the already very serious lack of correspondence between the WPI and CPI.

More troubling is the deepening meaninglessness of the CPI numbers – rural and urban for major states doesn’t help one bit if the list of items is not expanded to reflect more accurately what households actually buy, rather than ignore the growing list of items they do. Continuing to ignore this long overdue need for correction will short-change India’s salaried workers and wage earners, and very seriously under-report true inflation especially for food.

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Understanding how food prices are gathered in India

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The main price types and their collection agencies and departments

The main price types and their collection agencies and departments

It isn’t easy, not with 468 cities and urban agglomerations whose populations are more than 100,000 – how many of their markets can be reliably covered? There are 236 with populations of between 100,000 and 200,000.

From there to 300,000 there are 79, from there to 400,000 there are 35, from there to 500,000 there are 22, to 600,000 and then to 700,000 there are 13 each, then up to a million there are 17, from there to two million there are 34, from there to five million there are 11, and five million and above there are eight.

How can any agency deal with such a spread, variety in typologies of urban growth, speed of growth, differences in income strata, and hope to be somewhat uniform and at least reasonably regular in the collection of price data? No one agency can, and not even a set of them can.

Still, to understand how prices are arrived at (“discovered” is the term the commodities futures markets like to use, but such use is far from innocuous and more than hurtful for the low-income households) and how they change over time we have to make use of what is available.

In India, price data is broadly classified into two categories: prices relating to bulk transactions and prices for small transactions (what the price collection agencies call ‘bulk transactions’ include wholesale prices and farm harvest prices).

What the price collection landscape in India looks like

What the price collection landscape in India looks like

Retail (or consumer) prices are small transactions – what the rural and urban (and migrant) household pays for a local food basket, for electricity, health care, education, clothes, transport, communication, durables and various services including banking.

So there are what the price monitoring and collection agencies call “customarily collected” prices and these are for items which are included in the typical consumer basket of goods of segments of population that have been terms industrial workers, agricultural labourers and rural labourers – and this is because there are separate consumer price indices computed every month for these three categories.

Several departments and agencies of the Government of India are involved in the collection of prices and their redistribution. Perhaps the most important but also the most frustrating (to find and use) is the Price Monitoring Cell of the Department of Consumer Affairs. It is important because the PMC collects and disseminates wholesale and retail prices of selected essential food items. It is frustrating because the website that delivers the data is frequently down. That’s apart from data gaps. But we have to work with what we have.