Goverment to include 'karela' in the new inflation basket, potato to have the highest weight

NEW DELHI: The humble karela may have remained off your plate for its bitterness, but the bitter gourd is now about to enter the list of vegetables whose prices are tracked by the government on a regular basis.

Drumsticks, cucumber, pumpkin, carrot and a few other vegetables could also be included in the new Wholesale Price Index. Potato, the king of vegetables for many, would rightly command the highest weight among vegetables in the new inflation basket.

The government hopes the bigger basket with a longer list of more representative vegetables would help douse inflation fires. The current WPI tracks only 11 vegetables while the proposed new basket would have 17 items.

The expanded vegetable basket is among some of the changes expected in the new revamped WPI series based on the recommendations of the Saumitra Chaudhuri committee set up to overhaul the index to bring about more accurate data.

“The new basket needs to be representatives of commonly available and consumed vegetables,” said a senior government official.
High vegetable prices have kept food inflation high, forcing the Reserve Bank of India to keep its monetary policy tight to preclude the risk of this inflation spilling over to other categories, or becoming more generalised. Sticky inflation was also seen as a key factor responsible for the Congress-led UPA’s drubbing in recent state elections.

Inflation in vegetables was 95 per cent in November and this was largely responsible for keeping food inflation at 20 per cent. The usual explanation for this high inflation is rising demand because of higher incomes, but the government believes an outdated inflation basked that tracks only a few vegetables is also responsible.

The existing vegetables basket of onion, potato, sweet potato, cabbage, cauliflower, tomato, brinjal, tapioca, lady’s finger, green peas and ginger has a 1.74 per cent weight in the WPI. Potatoes and onions are expected to have a higher weight in the new basket as well because of their round the year, across country consumption.

“Production process in the economy is changing and it has to reflect in the index… If they have expanded coverage by including more vegetables, it will give a true picture of the consumption basket,” said DK Pant, chief economist at India Ratings.

WPI-based inflation quickened to 7.52 per cent in November, the highest in 14 months. Retail inflation, measured by the consumer price index, came in double digits in November at 11.24 per cent . Onion prices rose 190% in November. A poorly represented food baskets in which potatoes, tomatoes and onions have large weights presents a distorted picture of the overall prices and also makes it more volatile.

According to ratings firm Crisil’s chief economist, DK Joshi, a wider product basket is only part of the solution. “Processes can be set right but more effort needs to go into execution … Information collection needs to be given more attention as data quality has been a big casualty.” The panel is expected to submit its report by the end of the financial year. It is also expected to suggest change in the base year for calculating inflation to 2009-10 and changeover to 2011-12.