India Changes The Question!

Indian inflation data has been providing unwelcome answers, the government is changing the question…

The Statistics Ministry of India announced the unveiling of a new CPI measure to be introduced in 2010 as a replacement for the current system, a monthly series of four price basket indices specific to urban or rural workers in different industries calculated by the Ministry of Labour.

The readings provided through the ML calculations has been significantly divergent from the Ministry of Commerce Wholesale Price Inflation index, a weekly data point which is the more commonly quoted measure as well as the one used by government planners to track price sensitivity in policy making.

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India Changes The Question! - India34

Over the course of the first half of 2009  the divergence between the 2 index series has become pronounced, with the May CPI for rural workers showing a growth rate of 10.6% versus the prices paid by the poor farmers that comprise half the sub continents population last year while the most recent weekly Wholesale figure showed a decline of 1.21%. The Statistics Ministry hopes that a newly calibrated basket of goods and services, measured through a more frequent survey and aggregated for consumers of all classes, will correct this “disconnect” between the current data series and aid policy makers.

Although the Indian collection methodology is antiquated, and price subsidies can complicate the calculation process, the change will not be without controversy. Leftist parties that have been marginalized by the sweeping Congress Party victory may well latch on to the data recalibration as a political football –the current CPI system, though flawed, does reflect the cost of living for the poorest and most vulnerable members of society (which in India means 25-40% of the total population depending on whose figures you choose to trust).

Any change which is perceived to provide the Singh Administrations’ with policy flexibility at the expense of vulnerable demographic groups will be a source of controversy as the Central Bank and Ministry of Finance continue to chart a course of lowered rates and privatization of state owned enterprise.

India Changes The Question! - india45

Andrew Barber

Director