Old WPI, new GDP base year series: Economists split on the impact

Staggered price-index rebasing sparks debate over deflators and data consistency

With India set to revise its gross domestic product (GDP) base year from 2011–12 to 2022–23 on Friday, economists are divided over whether the parallel lag in rebasing the Wholesale Price Index (WPI) will considerably distort real growth estimates.

 

The Ministry of Statistics and Programme Implementation rebased the Consumer Price Index (CPI) base year from 2012 to 2024, but the WPI base year — compiled by the Ministry of Commerce and Industry — remains unchanged at 2011–12, raising questions about consistency in national accounts deflators.

 

Terming WPI “the weakest link in the national accounts”, N R Bhanumurthy, director of the Madras School of Economics, said that even if the basket and weights are not overhauled, the WPI base should at least be pushed forward to avoid large divergences between nominal and real gross domestic product (GDP), as well as in the deflator. 

 

 

Bhanumurthy pointed to the lack of co-integration between WPI and CPI trends as evidence that “one of them is not reflecting price pressures”. “The assumption is that changes in wholesale prices transmit to retail prices with a lag. My criticism of the existing mechanism is that there is no co-integration between CPI and WPI,” he said.

 

In an attempt to make national accounts aggregates more conceptually robust, less volatile, and better aligned with international standards such as the System of National Accounts, the statistics ministry is likely to make important changes to the way India deflates consumption, investment, and trade flows in the new GDP series.