India Using "flawed methodology" to Calculate Inflation?

[AgNoStiC MuSliM]

It was related to some guy here lamenting that 300 million Indians are now eating twice instead of once earlier and relating that to India benefiting from 9-11!

Think of muddled thinking!

Indeed - but the proper place would have been the relevant thread with your response directed at the poster of those comments.

Made in this thread, where I didn't see such comments (yet), your comments tend to imply that the opinions you criticized are held by other members who did not express them.

 

[Vinod2070]

Indeed - but the proper place would have been the relevant thread with your response directed at the poster of those comments.

Made in this thread, where I didn't see such comments (yet), your comments tend to imply that the opinions you criticized are held by other members who did not express them.

You are right. I brought the context of the other thread here by mistake.

May be, I also got mixed up by all the muddled thinking going on.

 

[Logic note]

Logic:

I take it from your posts then that the article is correct in criticizing the GoI for using a "flawed" methodology (different from deliberate underreporting or figure fudging), and that some in the GoI recognize this and are attempting to rectify it.

Yes it appears so .
Howe ever there is no methodology or theory which is eternal .. its the time which will come out with a new methodology proclaiming the older one as flawed .
but as this mentions that unlike other countries India understand the problem of using CPI as the methodology to calculate inflation as
in India, there are four different types of CPI indices, and that makes switching over to the Index from WPI fairly 'risky and unwieldy.' The four CPI series are: CPI Industrial Workers; CPI Urban Non-Manual Employees; CPI Agricultural labourers; and CPI Rural labour.

Secondly Secondly, officials say the CPI cannot be used in India because there is too much of a lag in reporting CPI numbers. In fact, as of May 21, the latest CPI number reported is for March 2006.

The WPI is published on a weekly basis and the CPI, on a monthly basis.

but now they are trying to take these two factors before shifting to CPI

Better be Late then wrong

 

[Logic note]

I understand what you are saying, but your post also indicates that the argument made in the article is valid, in that the context of the article is a comparison of inflation stats between various countries, and that such a comparison statistically at least cannot be made due to the methodology used by India.

Add to that the PDS and related subsidies (not necessarily a bad policy when it comes to basic/essential commodities) tend to artificially lower Indian inflation, than would be possible in a "free market".

Would the above be a correct interpretation of your argument?

Economy itself is artificial as it is created , developed and used for and by humans . inflation is mostly caused by the Policies of various agencies and government has the authority , responsibility and power to control it .
In India , government can control inflation by checking the wholesale price index as PDS system (which is used for maximum number of poor ppl) uses the wholesale price as a measure in selling .

Rice is 2 Rs Kg in TamilNadu Karunanidhi Jindabad

 

[Bushroda]

I understand what you are saying, but your post also indicates that the argument made in the article is valid, in that the context of the article is a comparison of inflation stats between various countries, and that such a comparison statistically at least cannot be made due to the methodology used by India.

AM, valid or invalid there shouldn't be an argument here. Frankly to me it seems that the author is simply giving an apologetic explanation as to why there is a huge difference between inflation figures of Pak & India. Ideally speaking there shouldn't be too much of a difference between WPI and CPI figures. One of the fundamental law of economics is "You consume what you produce". But thats not usually the case. With export & import figures & overhead cost incurred for the time goods take to arrive in the market there is bound to be some difference. But, if the author is implying that there can be huge difference between India's WPI figures & presumed CPI figures is plain stupid. In clear terms it would mean that whatever India is producing a large part of it is being consumed by somebody else. A nation's produce are first meant for its own people's consumption. Any place be it, there is a need to monitor & control the market. Tell me, how many grocery stores in India/Pak pay sales tax religiously? How would you know how much potatoes, onions & meat got sold in the local mandi? In India/Pak, all of these figures can only be acquired only at production end & not at the consumption end as it is nearly impossible to know what got sold in the market if you do not know what was produced.

Add to that the PDS and related subsidies (not necessarily a bad policy when it comes to basic/essential commodities) tend to artificially lower Indian inflation, than would be possible in a "free market".

"Free market" cannot be freely practised in developing countries. If I am right Pakistan's poverty figures were 16% in '88, increased to 40% in 2000, decreased to 25% in 2006 & it is being said that the numbers would once again increase in the event of ongoing food crisis. Ever wondered why Pakistan's poverty figures follow a sinusoidal waveform whereas everywhere else it is a regular decrease? A part of the explaination is that Government of Pakistan hasn't been able to insulate its people from external shocks.

 

[AgNoStiC MuSliM]

Economy itself is artificial as it is created , developed and used for and by humans . inflation is mostly caused by the Policies of various agencies and government has the authority , responsibility and power to control it .
In India , government can control inflation by checking the wholesale price index as PDS system (which is used for maximum number of poor ppl) uses the wholesale price as a measure in selling .

Rice is 2 Rs Kg in TamilNadu Karunanidhi Jindabad

"Artificial", in the context of the "free market system".

But as I mentioned in my earlier post, I don't consider subsidies for essential commodities to be bad policy, in fact I think that most developing countries should look at that option.

I have the same opinion about health care and education - they need to be subsidized to ensure that they are within reach of a large portion of the population, and in developing countries the gap between those who can afford services and products at free market prices (and the size of the segment of the population that cannot afford them) is typically quite large.

But then I am a quasi-socialist at heart anyway.

 

[AgNoStiC MuSliM]

Bushroda:

The validity of the points raised by the author of the report (I am not certain who the paper the author is basing his comments upon is by) do have a bearing on the discussion, because if the points raised are valid, there is no need to indulge in speculation over what the motivation of the author may be, nor does it matter what the motivation of the author is.

The author does raise some specific points, and while I understand your argument in your previous post, it doesn't quite clear every issue he brings up. Not that I think food inflation in India is higher than inflation in Pakistan - better food reserves, extensive subsidies etc in India (good policy in my opinion) ensure a more stable price for essential commodities IMO.

 

[Bushroda]

Bushroda:

The validity of the points raised by the author of the report (I am not certain who the paper the author is basing his comments upon is by) do have a bearing on the discussion, because if the points raised are valid, there is no need to indulge in speculation over what the motivation of the author may be, nor does it matter what the motivation of the author is.

The author does raise some specific points, and while I understand your argument in your previous post, it doesn't quite clear every issue he brings up. Not that I think food inflation in India is higher than inflation in Pakistan - better food reserves, extensive subsidies etc in India (good policy in my opinion) ensure a more stable price for essential commodities IMO.

AM, there cannot be any valid point if the important reason behind the issue is not revealed. I don't know what "specific points" you see in author's argument. The first half of the article is devoted in comparing India/Pak's inflation figures at different dates and second half gives a list of few of the several countries that use CPI index as the model of calculation of inflation. But the reason behind India's use of WPI based index is clearly ignored. India isn't a complete free market economy. It is merely opening one door at a time. And it has genuine reasons to do so since it provides it a mean to insulate its poor class from exploitation. 75% of Indians still use "Ration card" to avail their monthly quota of food grains, kerosene, cooking oil etc. Farmers in India are provided free electricity, water & heavily subsidized seeds for irrigation & farming. In '94, Dabhol power project with Enron Energy collapsed simply for the reason that Enron didn't want to set the low per unit cost of energy that government wanted it to. The government's reasoning was simple that if they had to buy electricity at the price that Enron wanted to set the cost of subsidy would be huge. I gave you the above example simply to show you how prices are regulated at every level in India. I don't understand how the author can state that India is using a flawed methodology for calculation when clearly the working in India is different from all the countries he has stated in his list.

 

[sajan]

Rice is 2 Rs Kg in TamilNadu Karunanidhi Jindabad

Wow.. thats great.. how can TN gov give rice for 2Rs a kg?? is that a subsidised price?
Rs 2 means around £.02 , how is that possible?

 

[Bushroda]

Wow.. thats great.. how can TN gov give rice for 2Rs a kg?? is that a subsidised price?
Rs 2 means around £.02 , how is that possible?

Rs.2/kg rice scheme was floated by NT Ramarao during '96 state elections in Andhra Pradesh. Since then the concept has caught up with few other south Indian states aswell.

 

[Logic note]

"Artificial", in the context of the "free market system".

But as I mentioned in my earlier post, I don't consider subsidies for essential commodities to be bad policy, in fact I think that most developing countries should look at that option.

I have the same opinion about health care and education - they need to be subsidized to ensure that they are within reach of a large portion of the population, and in developing countries the gap between those who can afford services and products at free market prices (and the size of the segment of the population that cannot afford them) is typically quite large.

But then I am a quasi-socialist at heart anyway.

There is no "Free Market" and there cant be any free market . because market has only one purpose - Profit .. and profit is not a natural end result of any human activity . it is a momentary product either created by few factors like demand and supply ratio or new innovation but then it leaves the society at the mercy of speculators and cunning profit wolves . hence if you know economy , this profit will maim the economy itself . very much like USA . lust for profit has made the system to go kaput .
just for little extra margins by cutting man power cost capitalist have shifted factories to China (where government uses jobs with meagre salaries to control its mass ) and hence capital has moved away from USA as ppl dont have jobs and no money to purchase

every country has its policy on subsidy .. from USA to Europe
Agricultural subsidy - Wikipedia, the free encyclopedia
EWG || Farm Subsidy Database

 

[Logic note]

Bushroda:

The validity of the points raised by the author of the report (I am not certain who the paper the author is basing his comments upon is by) do have a bearing on the discussion, because if the points raised are valid, there is no need to indulge in speculation over what the motivation of the author may be, nor does it matter what the motivation of the author is.

The author does raise some specific points, and while I understand your argument in your previous post, it doesn't quite clear every issue he brings up. Not that I think food inflation in India is higher than inflation in Pakistan - better food reserves, extensive subsidies etc in India (good policy in my opinion) ensure a more stable price for essential commodities IMO.

Dear Agno
In India , every thing is in open and GOI has always published its report mentioning the methodology and the process of its reports
there has been internal discussion about it from a long time
see this
inflation calculation India - Google Search

 

[Logic note]

Wow.. thats great.. how can TN gov give rice for 2Rs a kg?? is that a subsidised price?
Rs 2 means around £.02 , how is that possible?

Yes as I and Bushroda mentioned , this is a subsidised price and this rice is distributed through PDS ( public distribution system ) to poor masses and hence CPI methodology doesn't mean anything for calculation inflation as it doesn't play any role for these masses

 

[sajan]

Yes as I and Bushroda mentioned , this is a subsidised price and this rice is distributed through PDS ( public distribution system ) to poor masses and hence CPI methodology doesn't mean anything for calculation inflation as it doesn't play any role for these masses

So is that system reaching the poor? is it just in paper or pratically done? Why its just followed in South Indian states only, why not rest of India? Or is it just a political stunt to get vote? If that is properly done poverty can be eliminated frm India completly right?

 

[Mohammed Azizuddin]

So is that system reaching the poor? is it just in paper or pratically done? Why its just followed in South Indian states only, why not rest of India? Or is it just a political stunt to get vote? If that is properly done poverty can be eliminated frm India completly right?

Hi there!!!!

I know about this whole Rs.2 perKg rice scheme.People here are given 'Ration cards' for the essential commodities. These ration cards are classifies into 2 colours Pink and White.Govt. officers visit each home and take photographs and retina scans.The pink cards are given to the middle income groups based on the yearly turnover by a particular family.The white ration cards are given to the low income groups. It is the people who hold these white cards that are given rice at Rs.2 subsided essentials like sugar and dals free sooking gas and free healthcare facilities. The middle class group which gets the pink cards cannoy claim any of these facilities and these cards are generally used as a form of ID proof cause it contains the photographs and retina scans.
All the commodities can be purchased only through Govt. fair price shops.

The Rs.2 rice scheme was started in Andhra Pradesh for the first time, and was a huge hit.Hence, politicians have lost no time to promise this scheme to the low income group people in their particular states.

cheers,