Indices to measure price changes in services to roll out by March

New Delhi: India will soon have indices measuring price changes in services that account for above 60% of the national income, helping in more accurate measures of inflation.

The government has shortlisted 10 sectors for which indices will be created, an official with the industries ministry told ET. At least two of them could be rolled out by the end of March 2011 while another four will be ready by the end of the next fiscal, he said.

“These (the indices) would give a more comprehensive picture of the price trends in the economy,” said C Rangarajan , Chairman of the Prime Minister’s Economic Advisory Council (PMEAC).

The services that would have price indices include transport, banking, insurance, communication, ports and storage. Defence services, health and education are three other sectors that will have a price index. All the indices will add up to a single index for services.

Over the years, services have become the most dynamic sector of the economy. They contributed above 60% of the country’s gross domestic product (GDP) in 2009-10, up from 29% in 1950.

“We are currently able to track the services production to some extent by the GDP estimates, but the trend in prices is not very clear,” said Indranil Pan, chief economist at private sector lender Kotak Mahindra Bank .

The only reliable price measure India has at present is the wholesale price index (WPI) for goods. The consumer price index for industrial workers has some implicit elements of services, but otherwise there is no measure available to measure the price changes in the largest sector of the economy.

The most comprehensive measure of inflation, the GDP deflator , is also based on inputs from the wholesale price index and retail indices.

It has to be recognised that creating an index for services is far more difficult than creating an index for goods, said CP Chandrasekhar, professor of economics at Jawaharlal Nehru University, who chairs the committee that is developing the index.

United Kingdom, a financial nerve centre of the world, is still developing a price index for banking, legal and accountancy services.

Before an index is created, it goes through a stage where various methodologies are assessed and one is selected. The users of the index are then given a chance to comment on the methodologies.

Some of the indices are at the second stage where comments have been invited.

The department of industrial policy and promotion, which is coordinating the indices, is also looking into the issue of the periodicity of the release, as data would not be available at the same frequency in every service. Data has to be collected from private and public enterprises and that would also create difficulties.