India will change the way it calculates inflation, a landmark overhaul that could reflect price changes more realistically.
For the government and consumers, the revamp could mean that they would have to cope with more precise, therefore, higher inflation figures.
Changes, to take effect from September, will be initiated in the wholesale price index (WPI), the country’s headline price barometer, and consumer price indices (CPI), which measure retail prices.
The updated indices will address a common complaint of consumers: that wholesale prices are often far less than actual prices.
The basket of commodities of daily use, whose prices are taken into account to calculate wholesale prices, would be expanded, from 435 to 676.
More importance would be given to manufactured products, such as a mobile phone, than to farm goods, such as biscuits. This is being done in view of a key shift in buying trends that current indices overlook —urban India is increasingly spending more on factory-finished items than on food itself.
The key change will be the base year, whose prices serve as threshold for inflation calculation — from 1993-94 to 2004-05. "The concept behind changes in the WPI is (to have) a more accurate record of prices at the first point of sale," Planning Commission member Abhijit Sen told HT.
Among food items, higher weightage would be given to fruits and vegetables, whose price rise has been sharper than currently shown. Alongside, retail price indicators are also being updated.