Amongst the major economies of the world India is the only country which still uses WPI (Wholesale Price Index) to measure inflation. This method of measuring inflation has been criticized by many economists. Recently the government of India has decided to take certain corrective steps in measuring inflation.
WPI was first used in 1902. However by 1970 many developed countries like China, United States, Japan, Singapore, France, United Kingdom and Canada replaced WPI by CPI (Consumer Price index). But India preferred to stick to WPI.
In WPI the price changes in those goods and services are considered which are traded in the wholesale market for measuring inflation. In CPI only those goods and services are taken into account which is purchased by the people. The CPI lists are modified after every 4-5 years to keep it more relevant but such flexibility has not be shown in case of WPI.
There are about 435 commodities in WPI in India at present. The base year for calculating WPI in India is 1993-94. Economists assert that WPI is used to measure the impact of prices on business but in India it is used to measure the impact on consumers and moreover there are certain commodities in WPI which people do not even consume.
There are about 100 commodities which at present have become irrelevant to the people but are still there in WPI. An example is given of coarse grain which is used to feed the livestock but is still a part of WPI.
Shifting from WPI to CPI is not an easy task in India. First in India there are four types of CPI: CPI Industrial Workers, CPI Agricultural laborers, CPI Rural labor and CPI Urban Non-Manual Employees. Secondly there is lag in reporting the CPI figures. WPI is reported on a weekly basis whereas CPI is reported on a monthly basis.
Recent Initiative:
The need for change is being felt in the government circle. Government of India has decided to take corrective measures to make WPI more realistic. As part of the initiative the government has decided to release the actual price of the commodities on a monthly basis for the common people from May 2008.
The service sector tariffs such as hospital fees, railways and airlines fares which at present are a part of CPI will now also be included in WPI.
WPI will now comprise of 980 items instead of 435 and the base year for calculating WPI will be changed from 1993-94 to 2004-05. Items which have become irrelevant will be removed from WPI and new items will be added.
Later on WPI will be phased out and will be replaced by PPI (Producer Price index). PPI will comprise of the cost which the producers pay to procure raw materials and the output price which they receive on produced items. Taxes and exports won’t be a part of PPI but imports will be taken into account.
Such realistic approach will be highly effective in measuring inflation. Realistic and more relevant figures will help the common man. The government and the central bank will also be more pragmatic in devising policies.
WPI was first used in 1902. However by 1970 many developed countries like China, United States, Japan, Singapore, France, United Kingdom and Canada replaced WPI by CPI (Consumer Price index). But India preferred to stick to WPI.
In WPI the price changes in those goods and services are considered which are traded in the wholesale market for measuring inflation. In CPI only those goods and services are taken into account which is purchased by the people. The CPI lists are modified after every 4-5 years to keep it more relevant but such flexibility has not be shown in case of WPI.
There are about 435 commodities in WPI in India at present. The base year for calculating WPI in India is 1993-94. Economists assert that WPI is used to measure the impact of prices on business but in India it is used to measure the impact on consumers and moreover there are certain commodities in WPI which people do not even consume.
There are about 100 commodities which at present have become irrelevant to the people but are still there in WPI. An example is given of coarse grain which is used to feed the livestock but is still a part of WPI.
Shifting from WPI to CPI is not an easy task in India. First in India there are four types of CPI: CPI Industrial Workers, CPI Agricultural laborers, CPI Rural labor and CPI Urban Non-Manual Employees. Secondly there is lag in reporting the CPI figures. WPI is reported on a weekly basis whereas CPI is reported on a monthly basis.
Recent Initiative:
The need for change is being felt in the government circle. Government of India has decided to take corrective measures to make WPI more realistic. As part of the initiative the government has decided to release the actual price of the commodities on a monthly basis for the common people from May 2008.
The service sector tariffs such as hospital fees, railways and airlines fares which at present are a part of CPI will now also be included in WPI.
WPI will now comprise of 980 items instead of 435 and the base year for calculating WPI will be changed from 1993-94 to 2004-05. Items which have become irrelevant will be removed from WPI and new items will be added.
Later on WPI will be phased out and will be replaced by PPI (Producer Price index). PPI will comprise of the cost which the producers pay to procure raw materials and the output price which they receive on produced items. Taxes and exports won’t be a part of PPI but imports will be taken into account.
Such realistic approach will be highly effective in measuring inflation. Realistic and more relevant figures will help the common man. The government and the central bank will also be more pragmatic in devising policies.
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