Govt looks to change base year for major economic gauges to FY23, revamp of key datasets also being planned

New Delhi: The government is considering a change in the base year for key economic indices to FY23, as well as a revamp of several datasets, to better capture structural changes in the economy, said people aware of deliberations on the matter. Measures such as the Index of Industrial Production (IIP), Wholesale Price Index (WPI) and National Income are currently benchmarked to FY12. Earlier, the base year was FY05. For the most-followed price benchmark, Consumer Price Index (CPI), base year is 2012.

“Discussions are going on. A final decision may be taken after the election,” said one official. The government will soon set up a panel to recommend changes to the way the national account is compiled, among other suggestions, said another person.

The base year provides a reference point for measuring changes in economic variables and comparing relative performances of indicators over time.

For instance, real gross domestic product (GDP) growth is currently calculated with reference to FY12 prices.

A regular update of the base year is required to keep indices aligned with changes in the structure of the economy, including consumption patterns, weights of sectors and the inclusion of new sectors.

Pronab Sen, former chairman of the National Statistical Commission, who had overseen some of the previous base revisions, said such changes should take place at least once in 10 years for calculating GDP. The exercise was delayed by Covid. Sen agreed that FY23 could be a base year for data revision, as the country hadn’t faced any major droughts or structural shocks to the economy at the time.

The revisions in CPI and WPI have to be more frequent, at least once in five years, said Sen, adding that they may otherwise become outdated because consumption patterns are changing rapidly.

When the base for GDP computation was changed to FY12 from FY05, there was improved coverage of financial corporations, local bodies and autonomous institutions, in addition to the change in methodology.

Changes in the base year for WPI and CPI — to FY12 and 2012, respectively — substantially widened the product basket and changed the weights assigned to items in line with prevailing consumption patterns.

DATA REVAMP
Along with the base revision, the plan is also to revamp the economic indices.

Experts have pointed out that price indices, in particular, are outdated, and the composition of the basket of products needs to be tweaked. For instance, CPI still captures horsecart fares, VCD players and dung cakes as part of its basket of 299 products and services.

The Reserve Bank of India uses CPI as its key price gauge for monetary policy management.

The industry ministry has been working on revamping the WPI series, while the consumption expenditure survey for FY23 has been undertaken in a bid to overhaul the CPI.

NR Bhanumurthy, vice chancellor of the BR Ambedkar School of Economics University, Bengaluru, who headed a sub-group formed by the Sudipto Mundle panel in 2018 on linking the old and new GDP series, said, “Earlier, the government thought of changing the base year to FY18 but it didn't happen because of structural changes like demonetisation (in November 2016) and the rollout of the goods and services tax regime (July 2017). Then came the pandemic in 2020.”

Former chief economic advisor Arvind Subramanian and economist Josh Felman said in a newspaper column last year that a number of sectors of the economy were deflated by “inappropriate indices,” which was, however, refuted by the finance ministry.