After a long drawnout debate, the WPI series base year was altered to 1993-94 which will take into account several macro and micro changes that have altered the very functioning of the Indian economy. The new base year has been chosen based on the well known criteria that of a normal year of production and trade and also for price variations where reliable data is available and at best recent year to capture the present happenings.

With a view to take into account all the important changes that have taken place in the economy since 1981-82 -- the old base year -- the revised index has incorporated all these relevant transactions. It has a commodity basket of 435items less than the previous which comprised 447 items. However, the weights have been altered and the new series focuses on items of recent importance. Irrelevant items have been dropped even as similar items have been amalgamated and certain other items split.

A micro look at the series shows that in all 136 distinct new items have been added to the revised series and a number of varieties/grades which were merely quotations of some items in the 1981-82 series without any relevant weights have been upgraded to the level of a commodity now. Certain items which have recently gained more importance in their usage have been amalgamated so as to make their description more purposeful.

As the Indian economy has undergone a structural change in its ways of functioning with regard to both production and consumption, as many as 150 items which figured in the 1981-82 series have been dropped as these are of no significance today and their contribution in the production value is negligible. The government realising the changes that the Indian economy has undergone both in its internal and external transactions has adopted a realistic stance and revamped the index so as to capture the crux of the issue. Only 68 per cent of the items are common in the old and new series.

Today with infrastructure and service industries also playing a dominant role it is for the first time that electricity for railway tractions, purified terepthalic acid, injection moulded plastic items, oxygen gas cylinders, cement railway sleepers, cold rolled sheets, LPG cylinders, jelly filled telephone cables, colour TV sets,computers and computer- based systems have been included. As these items have emerged as important components to the development process it is very rightful that these be taken into account so as to capture their importance in the economy.

Some of the items which have been dropped and which are not much of significance today are mica, imported petroleum crude, indigenous petroleum crude, khadi handloom cloth, broad gauge open wagons and wrist watches.

If one glances at the revised series a very significant change apparent is that the weight for primary articles has significantly declined even as weightage for manufactured products has gone up considerably. This is mainly due to the slow growth in the agricultural sector particularly food articles and non- food articles.

The weight for primary articles has declined to 22. 02 per cent in the revised series from a high of 32. 29 in the old series. But as the Indian economy moves on to a higher growth trajectory, the weight for fuels and manufactured products has risen significantly as these commodities are of topmost relevance today. The new weights are in conformity with the fundamental changes that have occurred in the Indian economy. It was way back in 1991 that India opened up its gates to the world and ever since India has undergone several transitional changes which could not be reflected in the old series. Thus the purpose of the whole exercise.

Comparative studies of both series shows that although the new series starts with a higher level than the old series, it is only post 1994-95 that both move in the same direction.

But in the new series after 1994-95 the rate of change is is slightly lower than in the old series as the commodities composition in the revised series reflects better quality products sometimes a little higher in absolute price levels too.

The working committee under the chairmanship of Prof. S R Hasim has not only stressed on the importance of the new happenings but its basic focus is that there should be more frequent revisions in the WPI because of the greater integration of the Indian economy with world economy and the changes that come as a result. Today a look at the production charts will show that it is the service sector that is contributing the highest to the income basket.

Thus, it is essential that services be included in the series. Initially, as a start off exercise only those service industries of relative importance for which data is available should be included in the revised and as the exercise proves purposeful, eventually a new series of WPI could be developed which includes both commodities and services.

But what is happening today is that after the revised series came into effect from April 1, 2000 the average inflation rate for 1999-2000 has hit a 30-year low of 2. 9 per cent which is the lowest ever level in the past 30 years. This is marginally lower than the 3 per cent average reported for the same period. Today with government is determined that there will be no roll back in subsidies and fiscal discipline its utmost target. And with inflation rising every week it peaked at around 5. 5 per cent recently taking into consideration the hike in LPG, diesel and kerosene prices.

The government should see to it that any exercise that it undertakes reflects the true picture of the economy. Usually only urban consumption and production patterns are taken into consideration while formulating any policy while the needs of the rural poor are totally neglected.

What the government should henceforth do is to have an index of the urban and one for the rural sectors which reflect and capture the production and consumption patterns of both these sectors -- which vary in nature. Otherwise, it will so happen that the poor will be paying a price which is much higher that the affordability criteria .

Today, the government is using inflation only as a tool to gather votes and not as an active monetary and fiscal indicator. With inflation now peaking at 5. 5 per cent levels compared to a static 2-3 per cent in the following weeks of the Budget announcement is a clear cut indicator that after passing of the Budget the poor consumer will have to live with the fear of continuous rising prices.

Hence, the government and the RBI have taken upon themselves the massive task of curtailing monetary expansion and streamlining the flow of investments so that it does not put pressure on the price levels.

But what is required is not only a cut in the government spending but monitoring of the end use criteria which will bring in the required revenues and still keep inflation in check.

This year’s Budget stressed on fiscal prudence with growth as the yardstick for achieving a high GDP growth of 8 per cent in the ensuing years. But, the question is will the government be able to achieve this over optimistic task and still keep inflation in controlled brackets.

This seems highly questionable as government will have to first carry out not only an exercise wherein expenditure is pruned but a qualitative improvement in the flow of revenues. For this to happen, hard hitting measures will have to be introduced to correct past distortions as the burden to clear in one fiscal is an impossible task.

The government has clearly ruled out any roll back in subsidies so what the poor man will have to live with is a rising price level. The government is expected to overshoot its subsidy bill by over Rs 5,000 crore.

With the introduction of the new series there will be a tendency for prices to rise faster as components like fuel, light, petrol and manufactured products have been assigned higher weightage which will fuel higher inflation. A recent study has shown that inflation has a direct linkage with fiscal deficit. Rising inflation means rising government expenditures which results in fiscal chaos.

In India inflation is not considered a very crucial indicator of growth unlike in the developed countries. It is only in India that importance is given to WPI unlike elsewhere where CPI is the major indicator of the price situation.

The inflation level appears to be low when measured by the official WPI tool. It is the CPI at different retail levels that gives the true picture. Thus, when WPI was up by two per cent CPI was up by five per cent.

The government today is caught in a Catch 22 situation where it has to face opposition in parliament if prices rise and on the other hand if prices fall it is the manufacturing sector that brings in the revenue which suffers the most. In such a situation what does the government do.

Invariably, the government will choose the option of letting prices rise which will help pep up the earnings of the manufacturing sector for which the poor man has to pay a price.