Different types of indices used in India

The most important economic indices used in India are the following. The same are used for macroeconomic planning and forecasting.  

Index of Industrial Production

• Index of Industrial Production (IIP) measures the quantum of changes in the industrial production in an economy and captures the general level of industrial activity in the country. It is a composite indicator expressed in terms of an index number which measures the short term changes in the volume of production of a basket of industrial products during a given period with respect to the base period.
• The base year is always given a value of 100. The current base year for the IIP series in India is 2011-12. So, if the current IIP reads as 116 it means that there has been 16% growth compared to the base year.
• IIP is a short term indicator of industrial growth till the results from Annual Survey of Industries and National Accounts Statistics are available. However, IIP is considered to be one of the lead indicators for short-term economic analysis because of its strong relationship with economic fluctuations in the rest of economy. Most of services, like transport, storage, communication, real estate, insurance and banking are industry dependent and are considerably influenced by industrial performance.
• Index of Industrial Production is compiled and published every month by Central Statistics Office (CSO) of the Ministry of Statistics and Programme Implementation with a time lag of six weeks from the reference month.

Consumer Price Index

• Consumer Price Index is a measure of change in retail prices of goods and services consumed by defined population group in a given area with reference to a base year. This basket of goods and services represents the level of living or the utility derived by the consumers at given levels of their income, prices and tastes. The consumer price index number measures changes only in one of the factors; prices. This index is an important economic indicator and is widely considered as a barometer of inflation, a tool for monitoring price stability and as a deflator in national accounts. Consumer price index is used as a measure of inflation in around 157 countries. The dearness allowance of Government employees and wage contracts between labour and employer is based on this index. The formula for calculating Consumer Price Index is Laspeyre’s index which is measured as follows;
• [Total cost of a fixed basket of goods and services in the current period * 100] divided by Total cost of the same basket in the base period
• The origin of Consumer Price Index can be traced to the period after first world war when there was a sharp rise in prices and cost of living. The erosion in the real wages of the workers led to a demand by the workers for compensation. This led to the conduct of socio-economic surveys among the working classes as a preliminary to the measurement of cost of living. Consumer price index numbers were known as “ Cost of Living Index Numbers” prior to July 1955. The Sixth International Conference of Labour Statisticians recommended the change in nomenclature from Cost of Living Index to Consumer Price index. The Cost of living index is a more broader term which includes not only changes in prices but several other factors like change in consumption habits and standard of living.
• Presently the consumer price indices compiled in India are CPI for Industrial workers CPI(IW), CPI for Agricultural Labourers CPI(AL) and; Rural Labourers CPI(RL) and (Urban) and CPI(Rural). Consumer Price Index for Urban Non Manual Employees was earlier computed by Central Statistical Organisation.

Importance of CPI:

The Reserve Bank of India (RBI) has started using CPI-combined as the sole inflation measure for the purpose of monetary policy. As per the agreement on Monetary Policy Framework between the Government and the RBI dated February 20, 2015 the sole of objective of RBI is price stability and a target is set for inflation as measured by the Consumer Price Index-Combined.

Wholesale Price Index:

• The Wholesale Price Index (WPI) is the price of a representative basket of wholesale goods. Some countries (like the Philippines) use WPI changes as a central measure of inflation.But now India has adopted new CPI to measure inflation. However, United States now report a producer price index instead.
• It also influences stock and fixed price markets. The WPI is published by the Economic Adviser in the Ministry of Commerce and Industry.The Wholesale Price Index focuses on the price of goods traded between corporations, rather than goods bought by consumers, which is measured by the Consumer Price Index. The purpose of the WPI is to monitor price movements that reflect supply and demand in industry, manufacturing and construction. This helps in analyzing both macroeconomic and microeconomic conditions.
• The wholesale price index (WPI) is based on the wholesale price of a few relevant commodities of over 240 commodities available. The commodities chosen for the calculation are based on their importance in the region and the point of time the WPI is employed. For example in India about 435 items were used for calculating the WPI in base year 1993-94 while the advanced base year 2011-12 uses 697 items.[1] .Currently the base year has been revised from 2004-05 to 2011-12 by the Office of Economic Advisor(OEA), Department of Industrial Policy and Promotion, Ministry of Commerce and Industry to align it with the base year of other macro economic indicators like the Gross Domestic Product(GDP)and Index of Industrial Production(IIP).

By: Priyank Kishore