9.2 Historically the concept of wholesale prices has assumed various connotations and has been put to different uses. However, in the matter of data collection a wide variety of sources, centres, and specifications of items have been adopted. Due to the practical need of evolving a series based on the voluntary method of supplying data it has happened very frequently that instead of wholesale prices, price data have been collected from sources which can be at best described as "producers’ prices" from manufacturing units. In many cases these prices correspond to farm-gate, factory-gate or mine-head prices; and in many other cases they refer to prices at the level of primary markets, secondary markets or other wholesale or even retail markets. It now seems increasingly apparent that this system of primary data collection on a weekly basis will become unsustainable as the economy changes its character and levers of control. The data collection based on voluntary responses has already come under pressure with the lessening grip of the government in setting prices and regulating markets. It has been the experience of the Secretariat of the Working Group in the present exercise of collecting data that voluntary compliance from commodity producers has been on the wane and the situation is likely to only worsen in future. There is an increasing need now to procure price data from the wholesale market proper. Quite apart from conceptual purity of such an exercise, the transformed economic environment has added a further dimension to this imperative. In the free market context the disclosure of price quotations by the producers could be limited since it may be a matter of importance for market creation and development as costs and prices become more of strategic importance in the new market place.

9.3 It is also the case that producers’ prices, other than in wholesale markets may contain significant components of transport and other allied costs which could move autonomously of the basic prices of commodities in question. A greater degree of uniformity in the data compilation effort is therefore important as an independent goal in this exercise. It is therefore recommended that a new system of data collection based on a network of centres spread throughout the country be put in place and linked through nodal centres by means of highspeed computing and data transmission facilities with the assistance of the NIC.

9.4 Further, it is envisaged that consumer price indices and other related economic indices at the national level will be revised with the proposed base year of 1999-2000. In the event, it is felt that the new exercise to change the base year of the WPI be subsequently changed to the year 1999-2000 to be in line with other forthcoming series. By then the 1993-94 series proposed in this report would be about six years old. If indeed, as envisaged, the wholesale market sources become more pertinent to the exercise, the case for strengthening the data collection system assumes greater urgency without the loss of further time. It is difficult to collect wholesale prices from the market except contemporaneously and so it is difficult to conceive of collecting historical data from the market, unlike in the case of producer prices where records tend to be more systematically kept. Therefore, the Working Group further recommends that the system of data collection may be started immediately with a view that this data base will be of invaluable use for future revision exercises.

9.5 It may be recalled that the WPI series constructed so far from the end of the 1930’s and revised periodically thereafter have been based entirely on the basket of material commodities. The series has evolved over time with considerable sophistication and complexity incorporated into it. However, it has excluded the entire range of services rendered and transacted in the economy. This is not an isolated instance in the context of Indian economy since a very similar history has been recorded in other economies as well. At the conceptual level there have been some difficulties in conjuring up the prospect of evolving price series on a range of business and other personal services and linking them with the commodity basket. However it has become increasingly important that this range of service sector prices is not excluded from the gamut of the WPI series, if only because they have begun to assume dominant shares in economic activity. At present the service sector as a whole account for nearly one-half of transactions and income generated in the economy. The Working Group has deliberated on this issue at length and has identified a number of lines of service activity for which indices could be evolved as a separate exercise. As and when these indices show robustness and stability of price behaviour, they could be integrated with the main body of the WPI.

9.6 Conceptually a ‘measure of inflation’ should measure the prices only at the "final demand" level and not at "intermediate demand" level. For true measure of inflation it is necessary to measure the changes in the prices only for the "final goods". The sum total of final goods also corresponds to the national income which is the sum total of final disposal plus external trade. As far as the inflation measure is concerned it is necessary that the proper weighting diagram ought to exclude inter-industry transactions that permeate economic activity but which are not central to the measurement of the price of final goods and services in the system. The Working Group recommends that work on a separate measure may be initiated for the measurement of inflation at the ‘final demand’ level for the economy.

9.7 It has been the practice to change the weighting diagram and the WPI series roughly once every decade. This has been the practice since such a construct first emerged. However, it is now realised that the pace of change in the economic structure has accelerated. It may be recalled that the WPI is based on the Laspeyre’s price index with base quantity weights which is assumed to reflect the structure of the underlying economy. Since the pace of change has now quickened it is imperative that the sample to represent those changes is also revised more frequently. It is fortuitous that the speed of data compilation, processing and transmission facilities has increased manifold compared with what it has been in the past. It is thus possible to do such an exercise with greater ease. The Working Group recommends that the base year could perhaps be changed about twice as frequently in the future and a new series available every 5-6 years to reflect the quickening change.

9.8 The Working Group has also recommended that a Standing Committee be set up to take timely action on issues of conceptual and practical difficulties as they arise after the present Working Group is disbanded. The proposed Standing Committee should devise ways of incorporating changes in the basket when the situation becomes imperative in the data collection process but such changes as incorporated ought to be consistent with the main proposals of the weighting diagram as finalised by this Working Group. The proposed Standing Committee should also be in a position to guide the work relating to the continued development of price indices for the services sector and other indices proposed in the report. It should also be in a position to advise and monitor the method of strengthening the data collection system for future revisions as envisaged in the recommendations above. The Standing Committee should be specifically constituted with the task of monitoring the changes and guiding the development of new indices recommended by the Working Group. The details as to its proposed terms of reference are presented in Annexure-V to the report.