Suggestions on the Base Revision of CPI- IW Series with Base 2016
Economic Policy Research & Development Committee, 14 September, 2020
The Bombay Chamber wish to complement the Ministry of Labour & Employment, Govt.of India for a thorough and exhaustive exercise that includes a change in the base year, an expansion of the sample, a new weighting diagram and a change in the methodology for calculating the index (from AP to GP).
However, we would like to place certain comments and suggestions for record:
1. Choice of base year: The current choice of base year 2016 is likely to have been ideal in a normal condition when business was as usual. However, currently we are far removed from the normal conditions and the pattern of choice of expenditures can actually change drastically for Industrial Workers – with 2020 as the break year due to the pandemic. Hence, we run the risk that the 2016 base year for CPI-IW could appear non-representative of the current expenditure basket of the Industrial Workers and could therefore, lead to policy errors.
Our suggestions are:
- Publish the new series with 2016 as the base year but also undertake a fresh exercise to rebase the series to a “normal year” for a better representation of the expenditure basket and therefore the weighting diagram.
- The alternative would be to continue with the old series for the moment and work out a newer weighting diagram that could represent the new expenditure patterns of individuals in the context of the pandemic (that unfortunately is laced with salary cuts/job losses). The weighting diagram now could be heavier once again for essentials such as food items and away from the discretionary ones that are mostly reported under miscellaneous.
2. Coincide the base year for the new CPI-IW to the base year for the national Headline CPI: This is likely to enable a more informed policy decision making from all institutions, especially the RBI in its conduct of monetary policy.
3. Incorporating data from e-commerce websites: The other suggestion is to upgrade the statistical framework and the concerned department must set up a mechanism to collect price data from e-Commerce websites. This source should be added to the other sources data (village and urban markets) when the price indices are rebased in the future with some thoughts on the sampling side at the first level – especially due to the pandemic and how people’s preference for shopping possibly is changing and could remain so for a significant time period. This specifically refers to the shift towards digital forms of shopping and away from brick and mortar stores. In this context it could be important to also do price checks from the online platforms (specially the larger ones such as Amazon and Flipkart) and incorporate the same in the CPI-IW – importantly as these platforms are also known to provide discounts for products.