Assessment, evaluation and inspection of any significant exercise, whether by government agencies or others, is a must step. This helps to perceive results, improve efficiency and find problems. Very often such assessment involves various kinds of “Indexes”, such as;
-Inflation Index (measuring the rate of general price rise in a country),
-Human Development Index (the well known and widely accepted index which asses country on parameters like education, health and standard of living),
-GDP Growth rate (rate of increase of national income),
-SENSEX (Sensitivity Index, measures the performance of public companies).
In this small write up “Offerings of an Index”, we will see how we should perceive the results of such indexes. (Here the credibility of such indexes are not questioned, as, firstly my knowledge is way deficient to do so and secondly these are prepared by finest institutions and organisations with full dedication and honesty).
Now on the questions of how far we should go with an index, there are 2 levels of operation;
Level 1- Index help people having authority of decision making to have a detailed idea of issues and hence take better decisions,
Level 2- Index give a real time reflection of the things happening on the grass-root level.
Here, Level 1 is totally fine and accepted. Indexes have helped people in government for taking major policy decisions and also greatly influence the decision making in the market corridors. But going towards Level 2 is not always justified and logical. This is because the world outside is way more dynamic and subjective than our statistical formulas think of.
Let us explain this with the help of an example. Taking the case of Inflation Indexes, in Indian Macroeconomics we measure inflation buy 2 indexes; Wholesale Price Inflation (WPI) and Consumer Price Inflation. Now there was a point in 2015 (October), when WPI was negative (approx. -3.7%) and CPI was positive (approx 5%). So at that time people were confused and they were asking whether we have inflation at the grass-root level or not. The real detail of this scenario was that WPI and CPI have more or less similar parameters for calculation of inflation but the weightage of each parameter is different in both the index. CPI has comparatively greater percentage of food articles and products and as we were facing two years of continuous drought, the prices of those items were very high and hence CPI was large enough in comparison to WPI. Also fuel, electricity and power comparatively carries a good weight in WPI, and as global prices of crude oil are low from past few years, the WPI went to be negative.
Now our concern here is; we, the common people, don’t know about such complexities and hence we were not able to draw a complete picture about inflation, by only seeing numbers of these indexes. But on the other hand Finance Ministry and Reserve Bank of India knew all these things in detail and hence were able to draw a complete picture and hence take major economic decisions.
So whenever we come across such indexes in newspapers (also during Prime Time “debates”), we should perceive them as a general idea and trend about the topic concerned. We should not consider those indexes as actual situation of real world and we should use our own senses and resources to gather complete information about the real situation. For us (common people) those indexes must act only as a tool of curiosity which would force us to look through all the dimensions and subjectivity of the topic, and then by our own efforts make a complete real picture of the issue concerned.