Rebasing of India's GDP and Price Indices
India is set to revise its GDP base year from 2011–12 to 2022–23. However, there is a division among economists on whether the unchanged Wholesale Price Index (WPI) base year will distort real growth estimates.
Current and Proposed Changes
- The Ministry of Statistics and Programme Implementation rebased the Consumer Price Index (CPI) from 2012 to 2024.
- The WPI base year, compiled by the Ministry of Commerce and Industry, remains at 2011–12.
Concerns and Criticisms
- N R Bhanumurthy, director of the Madras School of Economics, highlighted the issue with the WPI not being updated, which could lead to large divergences between nominal and real GDP.
- He noted the lack of co-integration between WPI and CPI trends, suggesting that one of them might not accurately reflect price pressures.
Proposed Enhancements
- The statistics ministry aims to make national accounts more robust and aligned with international standards.
- Manufacturing will see significant upgrades with the introduction of double deflation for certain categories.
- Input baskets and item-wise WPIs will be used for output and intermediate consumption deflation.
Economist Views
- Many economists believe the impact on headline real GDP may be limited as WPI is used in a disaggregated, industry-specific manner.
- Pronab Sen and Ashish Kumar suggest that while a more recent WPI would be preferable, the current approach is not severely flawed.
- P C Mohanan noted minimal differences at the aggregate level with new CPI series introduction.
- T C A Anant explained that differences between CPI and WPI are due to basket differences rather than price movements.
Key Points
- India will rebase GDP to 2022-23 and CPI to 2024, while WPI remains at the 2011-12 base year.
- WPI is considered the 'weakest link' due to inconsistencies with CPI trends.
- The impact on real GDP might be limited due to the use of WPI at industry-specific levels; however, outdated weighing could cause inconsistencies.
