context for me to address some criticism against the reserve bank ’ s use and analysis of inflation data. abstracting from all the details and nuances, the criticism can be summarized as follows : ( i ) the use of wpi as the headline inflation index is flawed as it does not capture the final goods prices that consumers actually experience in the market. rbi should be guided more by the cpi which more accurately reflects demand pressures because it is demand pressures that monetary policy action can influence. ( ii ) rbi ’ s interpretation of non - food manufacturing inflation as a proxy for demand pressures is flawed as it reflects more supply side price adjustments and cost push factors than demand side pressures. at the outset, i must admit that this criticism has some merit. conceptually, the cpi is a better indicator of demand side pressures than the wpi. an increase in wholesale prices, if sustained, either results in an eventual increase in prices by retailers or a squeeze in their margins. if demand is strong, retailers may exercise pricing power and pass on the increase in wholesale prices to consumers. in case demand is weak, retailers will be forced to partly absorb the increase in wholesale prices in their margins. thus, there is no denying that consumer prices better reflect demand side pressures than wholesale prices. even so, in india, we have opted for wpi over cpi as a second best choice for a number of reasons. first and most importantly, we do not have a single cpi that is representative of the whole country. until recently we had four, and of those, currently we have three cpis representing different segments of the population. while wpi is computed on an all - india basis, cpis are constructed for specific centres and then aggregated to an all - india index. second, wpi is available with a slightly shorter lag than the cpis. third, wpi has a broader coverage than the cpis in terms of the number of commodities, number of quotations, inclusion of non - agricultural products and tradeable items. finally, the revision of the basket for cpi series lags that of the wpi series. last year, the wpi series was revised to the base of 2004 – 05 whereas the existing cpis continue with the old base – for cpi - rl ( 1986 – 87 ), cpi - al ( 1986 – 87 ) and cpi - iw ( 2001 ) which makes cpis ill - equipped to capture the price behaviour caused by the rapid structural changes in the economy. the

##cyclical buffers during the upswing of a business cycle and their use during the downturn of the business cycle. this means we need to be able to make a judgement on the inflexion point in the business cycle in real time. quite evidently, both pre - mature action or delayed action can be costly in macroeconomic terms. in order to deploy countercyclical buffers, we need to hone our skills in business cycle analysis which again is based on time series analysis – one of the two focus areas of this conference. data gaps let me under this heading address some of the areas where we have to made improvements in statistical measurement. potential output first, we need a more reliable measure of the potential output of the economy. potential output, as we all know, is the maximum output that the economy can produce without putting pressure on the trend / average inflation rate. when the economy is operating at the potential level, aggregate demand and supply in the economy are balanced so that inflation tends to its long run expected value. a measure of potential output is therefore important not only to capture output data but to assess the inflation dynamics in the economy. the measurement of potential output depends on reliable data on employment and wages. i commented on both these statistics earlier while speaking about the quality of data. i am happy to note that the national statistical commission and the official statistical agencies are engaged in improving the quality of both employment and wage data. as that happens, we can look forward to a statistically more robust potential output measurement of the economy, and that in turn should improve our inflation watch. in the aftermath of the global financial crisis, growth rates in major advanced economies remain sluggish despite large output gaps. past experience with financial crises episodes suggests that growth and investment rates typically remain below the pre - crisis levels and potential growth rates take a hit. similar dynamics are at play in the aftermath of the recent financial crisis. there is a perception that potential growth rates of advanced economies are likely to be lower than their pre - crisis trends. if so, given the growing trade and financial bis central bankers ’ speeches globalization, potential growth rates of the fast - growing emerging market economies can be expected to be lower than the pre - crisis trends. against this backdrop, it would be useful to re - assess india ’ s potential growth rate consistent with our objective of low and stable inflation. services sector production and price index a defining feature of the indian economy is the large share of the services sector,