Construction of Services Price Index to measure inflation

New Delhi, May 24 (UNI) Services sector account for more than 54 per cent of India's GDP and the construction of Services Price Index (SPI) to make the measurement of inflation inclusive and realistic a necessity.

Industry chamber PHDCCI today suggested construction of Services and said it will explore views and invite suggestions on the SPI, methodology and feasibility involved in the construction of the index.

PHDCCI Secretary General Krishan Kalra said, ''The Chamber aims at promoting public-private partnerships for bringing to light the creative policy framework in response to the needs of the industry, policy experts and the common man.'' The project is sponsored by the Department of Industrial Policy and Promotion (DIPP), Ministry of Commerce and Industry and the World Bank.

The services sector today comprises of trade, hotels, restaurants, transport, storage and communication, financing and insurance, real estate, business services and community, social and personnel services.

''The inclusion of services in the price index will reflect the prevailing realities in the market place wherein more and more services have become tradable commodities,'' he added.

According to a statement by PHDCCI, agriculture and industry sector accounts for 22 per cent and 24 per cent of the GDP respectively.

To take care of the price movements in the same, the Wholesale Price Index (WPI) is constructed, which excludes the movement of the prices in the services sector, the chamber adds.

The Sub-group of Technical Advisory Committee (TAC) which was set up in the year 2000, endorsed the feasibility of constructing the SPI and pointed out that the index should be a supplement to the WPI and both will be integrated only after the stabilisation of the SPI, said the statement.

According to PHDCCI, the number of national statistical agencies taking up data collection on services are increasing, though the methodologies for computation differs. Some focus exclusively on the prices of services provided to enterprises while the others approach the subject more broadly through the development of the services price indices.

Some countries, which compile the movements of services producer prices include Germany, Hong Kong, Japan, Korea, Mexico, Sweden, UK, US and Poland.

The construction of SPI is considered a complex and delicate task due to lack of conceptual clarity, whether a segment could be treated as part of industry or services, states PHDCCI in a statement.

Besides, the nature of service activity also makes it difficult to define the concepts of outputs and inputs, it adds.

Under the International Standard Industrial Classification (CPC), Electricity and Construction constitute parts of industrial sector. But some of the OECD countries give different treatment to these sectors. The site preparation and architectural services, though treated as part of construction, are included in the services prices index and electricity is treated as a part of industrial activity.

In India, in conformity with the international standards, both industry and construction are treated as part of industrial activity, says PHDCCI.

PHDCCI feels the presence of a predominantly unorganised sector in India also will pose difficulties in constructing SPI in view of the difficulties in getting quality data.

UNI