IIP, INFLATION and BASE YEAR

Last week many would have read or listen in news that IIP index had bettered than expectations to increase at 17.6% in April. Creating a 20- Year high achieved due to increase in consumer demand, revival in exports and higher infrastructure spending. This 17.6% (General IIP) higher is as compared to the level in the month of April 2009. Another important thing is this growth (Year on Year) is much higher compared to 2009-10 (1.1%) and 2008-09 (6.2%). When it comes to manufacturing sector alone then it had a tremendous growth in April 2010 of 19.4% over the 0.4 % in April 2009-10 and 6.7% in April 2008-09.


Another Important thing appeared in the news is Food Inflation again raised marginally to 16.74% in the week ended May 29 marking second consecutive week rise. The annual rate of inflation (calculated on point to point basis) of Primary Articles stood at 17.21 percent (Provisional) for the week ended 29/05/2010 over 30/05/2009. The annual rate of inflation (calculated on point to point basis) of Fuel, Power, Light and Lubricants stood at 14.23 percent (Provisional) for the week ended 29/05/2010 (over 30/05/2009) (Source: Economic Affairs).


In March, CSO announced that they will follow the 2004-05 as the base year for price index and they also said they will have 250 new items in WPI to provide more realistic picture of price rise and its impact on people. They also said that a new wholesale price-based index for measuring inflation would be rolled out from May 14. But the fact and reality is till date we don’t find new WPI with the base year 2004-05, we are still following 1993-94 as a base year.


There are 2 questions which arise in my mind. 1. Since we are calculating the WPI with the base year 1993-94, it is really a big question whether this inflation rate shows the real picture of the Prices and its impact on People. 2. Why CSO is unable to adopt the new price index as they said from May 14? The base year 1993-94, is not only for Inflation index but the same is used for IIP also, until the new base year comes into existence it is difficult to say whether these data’s gives us the real picture of the economy.