NEW DELHI: In a bid to obtain a `true picture' of the effect of price changes on the economy, the Union Finance Ministry has proposed the inclusion of services in the Wholesale Price Index (WPI) which is used to measure point-to-point inflation.

The Finance Ministry, in a draft paper by Senior Economic Advisor H. A. C. Prasad, said: "Inclusion of services in the inflation index will give a true picture of inflation in India.'' The draft paper has been circulated to all ministries and departments concerned as also various industry associations for their comments on the proposal.

According to the paper titled `Strategy for India's services sector: Broad contours', while the WPI now does not include services, the two consumer price indices (CPI) categorised for urban non-manual employees and industrial workers, do include certain services such as medical care, education, recreation and amusement, transport and communication. On the other hand, some of the other major services such as trade, hotels, financing, insurance, real estate and business services do not find a mention either in the WPI or in the CPIs.

Explaining the rationale for the inclusion of services in the WPI, the draft paper has cited the example of the US where the contribution of services to the country's GDP (gross domestic product) is about 73 per cent and the weightage given to the sector in the CPI for all urban consumer (CPI-U) is 59.9 per cent.

In India, the services sector accounted for 54 per cent of the GDP during the previous fiscal year. According to the paper, if the construction industry, as grouped by the Reserve bank of India (RBI) is also included as services, the sector's share will stand increased to 60.7 per cent.

Interestingly, as the WPI-based inflation is already close to touching the upper limit of 5.5 per cent as projected by the RBI for the current fiscal, the expectation is that the inclusion of services will bring about some moderation in the inflationary spiral.

The WPI-based inflation series has 435 items in the basket as revised in April 2000 (base 1993-94 prices). During the revision, while 136 distinctly new items were added to the basket, 150 items were dropped.

On a broader level, while primary articles — food and non-food items and minerals — have a weight of 22.02 per cent in the WPI, the `fuel, power, light and lubricants' group has a weightage of 14.23 per. The highest weight of 63.75 per cent stands accorded to the category of manufactured products.

Printer friendly page  
Send this article to Friends by E-Mail