Govt plans to change base year of key economic gauges like CPI to FY23

Economic indices such as the Index of Industrial Production (IIP), Wholesale Price Index (WPI), and National Income are benchmarked to FY12

The government is considering changing the base year for key economic indices to FY23 and revamping several datasets to better reflect structural changes in the economy, The Economic Times (ET) reported.

Currently, measures such as the Index of Industrial Production (IIP), Wholesale Price Index (WPI), and National Income are benchmarked to FY12, with the previous base year being FY05. The Consumer Price Index (CPI), a widely followed price benchmark, also uses 2012 as its base year.

"Discussions are going on. A final decision may be taken after the election," ET said, citing an official. The government will soon establish a panel to recommend changes in the compilation of national accounts, among other suggestions, the report added.

What is a base year benchmark?

The base year serves as a reference point for measuring changes in economic variables and comparing the relative performance of indicators over time. For example, real GDP growth is currently calculated with reference to FY12 prices.

Regular updates to the base year are necessary to keep indices aligned with changes in the economy's structure, including shifts in consumption patterns, sector weights, and the inclusion of new sectors.

The last change in the GDP computation base year, from FY05 to FY12, improved coverage of financial corporations, local bodies, and autonomous institutions and included methodological changes.

Similarly, changing the base years for WPI and CPI to FY12 and 2012, respectively, significantly expanded the product basket and adjusted item weights to match current consumption patterns.

Experts agreed that such changes should take place at least once in 10 years for calculating GDP. They said that FY23 could serve as the base year for data revision, as the country had not experienced any significant droughts or structural shocks to the economy during that period.

Plans to revamp key datasets like CPI

In addition to revising the base year, there are plans to revamp economic indices. The ET report cited experts as saying that price indices, in particular, are outdated and the product basket composition needs updating.

For instance, the CPI still includes items like horsecart fares, VCD players, and dung cakes in its basket of 299 products and services. The Reserve Bank of India (RBI) uses CPI as its key price gauge for monetary policy management.

The Industry Ministry has been working on updating the WPI series, while the consumption expenditure survey for FY23 is being conducted to overhaul the CPI, ET said.