Friday 7 November 2014

Rising Inflation: Narendra Modi government mulls creation of a real-time system to keep track of prices

In Transfinancial Economics the idea of monitoring prices in Real-Time plays a vital role.
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Vikas Dhoot, ET Bureau Jun 18, 2014, 04.48AM ISTThe Economic Times

  • (The PMO Is mulling such…)
    NEW DELHI: With inflation resurging as a headache after
    (The PMO Is mulling such…)
    NEW DELHI: With inflation resurging as a headache after the Wholesale Price Index (WPI) spiked to 6% in May, its highest level in five months, the Narendra Modi government is considering a proposal to create a real-time data monitoring system to keep track of food production, stocks and prices across the country.
    The Prime Minister's Office (PMO) is mulling such a system as it could help coordinate more effectively with official agencies and state governments to try and balance supplies and moderate prices on a proactive basis.
    Finance minister Arun Jaitley on Monday blamed hoarders and the poor monsoon for the spike in wholesale price inflation to over 6% in May, inviting criticism from the Congress which said the same arguments were made by UPA ministers to explain why inflation was difficult to tame. Inflation, along with corruption, was one of the biggest planks of the recent Lok Sabha campaign, with the BJP flagging the UPA government's inability to curb price rise over the past decade.
    The Modi government has said "containing food inflation will be its top-most priority."
    The prime minister has said it is time for tough decisions to revive the economy, but high inflation could limit the space for some of the difficult policy choices to be made such as rationalising subsidies. With wholesale prices touching a five-month high in May and a below-normal monsoon on the cards - a 'business-as-usual' approach may not be enough to tackle the price rise monster.
    "Good timely data is critical for the government to mitigate food inflation and for that, a better price monitoring system is imperative. Though some agencies like the price monitoring unit in the consumer affairs ministry monitor prices on a daily basis, it only involves 22 commodities and the data is not robust," said a senior official aware of the development.
    Under the present system, nine different official agencies, including the Intelligence Bureau (IB), track price data with each using a different methodology and reporting format.
    The IB tracks retail prices, as does the price monitoring cell in the consumer affairs ministry and the directorate of economics and statistics (DES) in the department of agriculture and cooperation. The consumer affairs ministry cell tracks wholesale and retail prices of 22 essential food items, spot and future prices of eight commodities traded on the exchanges, and weekly mandi prices of 20 items. The DES in the agriculture ministry collects wholesale and retail prices along with production, area coverage and weather forecast on a weekly basis. It collects prices from state marketing boards with an intent to provide advance assessments regarding demand-supply gaps to the Centre. Besides, the DES also tracks farm gate prices, which do not include transport and storage costs and publishes them at an interval of three to four years.
      "Almost all the price data received by government suffers from a huge time lag. Though the price monitoring cell gets retail and wholesale prices on the same day, the data is often not accurate as states don't update their inputs in earnestness," the official said. Separately, the directorate of marketing and inspection under the same ministry collects wholesale prices of farm products on a daily basis, with prices uploaded online by APMCs.

    Capturing price trends into a headline measure of inflation is done by three other departments. For instance, the WPI is generated by the economic adviser in the department of industrial policy and promotion. The index is used for macroeconomic policies and monetary policies.
    To capture price movements at the ground level, which citizens are concerned about, the Labour Bureau under the labour and employment ministry, generates consumer price indices for industrial workers, farm and rural labourers, separately. The Central Statistical Organisation also compiles consumer price indices for urban and rural areas with the purpose of providing a general measure of inflation encompassing all sections of the population.

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