How do we pick a new base year
The Hindu Business Line [
Bengaluru
]
Chennai
,
Kochi
,
Hyderabad
,
Kolkata
,
Mumbai
,
Pune
,
Delhi
Jun 3, 2024 | Page No.: 4 | Position: Top Center | Source: Madan Sabnavis | Sq Cm: 626 | AVE: 115823 | PR Value: 579115
Record : 1 / 1
View Text
Merge JPEG
JPEG
Tiff
Word Doc
PDF
1
All Text
How do we pick a new base year BASE EFFECTS Given the Covid impact of recent years FY19 seems the best option as base year with updated weights MADAN SABNAVIS There is a consensus on the need to change the base years for our economic variables The present base year for IIP VVPI and GDP is 2011-12 while it is 2012 for the CPI There are two issues with the base year being outdated The first is that there is a concern over indexing all numbers to a base which is over 13 years old The second which is probably more important is that the composition of production and consumption of goods has seen sharp changes every three or four years To capture these changes revisions are called for about every five years TIME PERIOD The choice of the time period is crucial PRICE CONUNDRUM The weightage for food in the CPI is now a matter of debate SUSHIL KUMAR VERMA while changing the base year While it has to be as contemporary as possible it needs to satisfy several criteria This FY24 released on May 31 in the last years are 1979 and 1995 respectively base year for these indices Choosing a becomes a challenge because unlike the three years are impressive they come This realignment will make it more base year post FY21 can lead to bias that phase of Great Moderation which lasted over low number of 3 9 per cent and complete can impact policymaking till the Lehman crisis the world minus 5 8 per cent in FY20 and FY21 The second pertains to the This holds especially for monetary economy has been volatile in every We are clearly not yet back to normal composition of indices Currently the policy where the inflation numbers sense even though the emerging This being the case FY19 looks a better WPI is a producer s price index and does could get a downward bias due to the markets have been more insulated from year 6 1 per cent growth not include services With services high inflation trajectory in the last three these shocks Covid was a universal having a larger share in GDP the WPI years phenomenon which affected all INFLATION FACTOR tends to only partly capture price In fact the household consumption countries Also inflation has been unusually high changes survey data if used can also skew the So choosing a year which was too for the last four years which will tend to While the government tracks a weights as food has a lower share based good or too bad has hangover effects in depress the numbers going ahead The services price index ideally it needs to on the data for FY23 The pent up reverse where subsequent years would inflation numbers were 4 8 per cent 6 2 be included in the WPI The CPI already demand witnessed post-Covid has led to look disproportionately high or low The per cent 5 5 per cent 6 7 per cent and has several elements of services like households spending a lot on travel and normal year also has to be one in which 5 4 per cent running up to FY24 education health and recreation But tourism as well as consumer goods where the variables did not witness any In FY19 it was 3 4 per cent within the sectors such as logistics need to be which has lent this bias to non-food shocks MPC target Therefore 2018-19 fits the included in the WPI items Therefore care must be taken Todaywith global crude oil prices bill here In fact ever since data was A related issue to the collection of when selecting the normal year having the potential to skew inflation released on household consumption data pertains to both GDP and IIP Under these unusual circumstances the base year must be free of such expenditure there has been discussion There are large elements of the there could be a case for deferring the disturbances on whether households are spending unorganised sector that need to be exercise until a new normal year closer If these principles were to be adhered less on food and more on elements of included This pertains to the MSME to the present day emerges But this to which year would be most suitable core inflation segment which dominates both services could be fraught with uncertainty base year While it is tempting to pick up Two related issues come up when and manufacturing There definitely Choosing a pre-Covid year of FY19 a contemporaryyear like 2021-22 or revising these base years The first is needs to be better representation of this maybe a bit dated as there has been a 2022-23 there is a huge decline bias still whether the stock indices too should be sector with less recourse sought to drastic change in how business is in the economy changed While the Sensex and Nifty are imputations conducted post-Covid A compromise A quick way to understand this bias is privately constructed indices their base Here the GST data provides useful solution is to update the base year to to look at the real GDP numbers During clues and can be used to impute more FY19 but look out for a new one which 2014-19 there was an increase of around accurate values on the value addition in can be FY25 or FY26 While using FY19 T42-lakh crore in real terms In contrast The composition of the this sector It must be remembered that as a base some of the weights can be post 2018-19 when Covid struck and a economy has changed when the base year of 2011-12 was aligned to the present when reckoning lockdown was imposed in March 2020 introduced there was no GST some of the indices This would be a the real increase has been of the order of drastically over the years In case of those units outside GST pragmatic way of going about the just t33-lakh crore FY19-24 More segments of the there should be surveys carried out by exercise Hence while the GDP growth rates of the MSME Ministry to get an idea of the 9 7 per cent 7 per cent and 8 2 per cent services sector need to be value addition Covid has definitely The writer is Chief Economist Bank of Baroda Views as per the provisional estimates for included in the indices skewed the process of selection of a new expressed are personal