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Urban price index on track, rural one languishes
June, 02nd 2008

The new consumer price index will shift the current gaze from wholesale prices, which do not reflect the reality at the consumer level, and also cut through the maze of unrepresentative indices for urban non-manual employees, agricultural workers and industrial workers that are being computed currently.

Yet, the new urban index would reveal only half the picture. Only when it is combined with the rural one to yield a national indicator would it be fit to calculate things such as dearness allowance for government employees (its now linked to the consumer price index for industrial workers).

Swaraj Kumar Nath, director-general of the Central Satistical Organisation (CSO), said: The rural index is stuck because of lack of manpower at the National Sample Survey Organisation (NSSO), which would do the fieldwork. We could start work on the urban index only after we stopped collecting data for the consumer price index for urban non-manual employees in March. Of the 3,500-odd field posts at NSSO, 600 are lying vacant.

The biggest job in forming an index is the market survey, which fixes the goods and services and their price points, said Sen. And for this critical job, I would need almost the entire NSSO staff for a year. For that, we would need to stop one of our regular surveys. It can possibly be done only the year after next.

That means the rural index, which would be fed by prices from 1,000 villages, is at least three years off.

But would the new consumer price indices (CPIs) being set up by the government for measuring urban and rural costs of living throw up a dramatically different view of inflation in the country?

Pronab Sen, Chief Statistician of India, cautions: A CPI, almost always, overstates inflation. An exercise currently on in the US shows their inflation to be 1-1.5 percentage points higher than that based on wholesale prices. For their level of inflation, its a helluva lot and the difference would surely be higher here.

What of the current view, gleaned from the obsolete wholesale price index (WPI)?

Sen says, I dont understand some of the hand-wringing now. We should have been at it months ago. The absolute value of the WPI reached an all-time peak in October 2006 after which it started sliding sharply; so the heightening effect of a low base had to kick in this year. For me, the peak came this February, when the annualised, week-to-week inflation touched 16 per cent. That was an early indicator of things to come.

That projects a rather foreboding image. If we consider that the effect of a price rise at the wholesale level percolates to the retail level with a lag, then the picture in the months ahead would be worrying. Add to that the imminent oil price rise, which almost immediately affects retail prices, and the possibility that the Pay Commission recommendations being implemented, giving more buying power to lakhs of people, and Sen agrees the picture could darken further.

For a silver lining, he points to the expected effect of industrial investments made a couple of years back. He says, Investment in capacity expansion in consumer goods started in 2005-06. That extra supply should hit the market soon, putting a downward pressure on the prices of things such as fast-moving consumer goods and durables.

For now, as we look at the numbers right or wrong and feel the pinch in our pockets, all we can do is keep our fingers crossed.

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