India’s WPI

If you did not knew, India is possibly the only significant country in the world which uses WPI (wholesale price index) instead of CPI (consumer price index) to calculate inflation. And this is the reason why inflation figures do not have much relevance for a common man.

Let me first explain what are the individual constituents of WPI.

wpi

1) Inflation to me is the yoy increase in cost of living to maintain a certain lifestyle. Now if you closely observe, you would notice that housing, entertainment, education, and other services do not figure anywhere in the government figures… even though they constitute a significant part of our expenditure.

2) All the prices used for computing the inflation is wholesale prices. Now how often do we go to the wholesale mandi and buy goods at wholesale prices? Retail prices makes more sense.

3) India is a service based economy. Even though we spend a lot on services, they form no part of the inflation figures.

4) Changing basket of consumption: According to MCX Chief Economist V Shanmugam, of the 435 commodities included in the WPI, of which over 100 have ceased to be important from the consumption point of view. Yet no steps have been taken to rectify this. Every country revises their basket of commodities and services every 3-4 years, but india refuses to do so.

5) Administered prices: All these fallacies give room for the government to artificially administer prices and give us the illusion that inflation is low.

If you do not believe me, then do a simple computation. Dig your old bank statements/ledgers/accounts and find out what you spend every month a few years ago. Now compute (on today’s prices) how much will you spend every month to maintain the same lifestyle. I can bet you that the increase in expenditure would be a few times higher than the official inflation figure of 6%.

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14 thoughts on “India’s WPI

  1. @prax …
    =) First movers advantage. btw can u pass me the link of that ila’s article.
    ya wpi calculations is very easy.. thats why most govts can give u a weekly figure.. while the CPI calculations are done over a monthly cycle.. and often due to the problems over collecting so much data and verifying it… these figures are usually a week or 2 old.

    //but what one has to look at is also the percentage of fiscal deficit which is a good indicator of how the govt is running the show.//
    I am relatively ok with having a controlled fiscal deficit… as long as the money is poured in developing infrastructure…
    but I am also with you in the fact that almost 80 of the governmental spending going in non-planned expenditure… i.e. paying salaries to babus.. who don’t give a shit about the country.

    @ruhi…
    thanks.

    Like

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