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May 16, 2017

New WPI, IIP series

In a big-bang release, the government on May 12 unveiled a new data series for the Index of Industrial Production (IIP) and Wholesale Price Index (WPI), which have been computed taking fiscal 2012 as the revised base year from fiscal 2005. The revision now aligns these indicators with the GDP – which was brought to 2011-12 base earlier - allowing for meaningful comparisons. This rejigs the underlying items list and weights to better reflect the contemporary structure of the economy.

  • The consumer price index (CPI) is already calculated on the fiscal 2012 base.
  • The revised WPI series pulls down inflation by 1 percentage point for the five fiscals ended March 31, 2017. Revised commodity and weight structure, and more importantly, eliminating central excise duties from prices, is the reason behind the lower WPI figures. But lower inflation could lead to an upward revision of past real GDP growth rates, provided other factors influencing GDP remain unchanged.
  • The revised IIP series, in contrast, pulls up the output growth rates for the past years. On the supply side of GDP, a higher IIP growth rate could lead to upward revision of real gross value added (GVA) growth rates in recent years (since unorganised sector growth is still based on IIP) provided other factors affecting GDP remain unchanged.
  • Meanwhile, CPI data for April 2017 was also released and saw inflation fall below 3%. Much of the fall was led by sharp decline in food inflation (led by higher production in fiscal 2017), moderation in fuel inflation (as the increase in global oil prices moderated) and softer core inflation (suggesting tempering of demand side pressures)