how does India calculate inflation?
India uses the Wholesale Price Index (WPI) to calculate and then decide the inflation rate in the economy.
what is wpi ?
The Wholesale Price Index (WPI) is the most widely
used price index in India. It is the only general index
capturing price movements in a comprehensive way. It is
an indicator of movement in prices of commodities in all
trade and transactions. It is also the price index in India
which is available on a weekly basis with the shortest
possible time lag of two weeks. It is due to these attributes
that it is widely used in business and industry circles and
in Government and is generally taken as an indicator of the
rate of inflation in the economy.
The current series of Index Number of Wholesale Prices
in India with 1981-82 as base year came into existence
from July 1989.
With a view to reflecting adequately the changes that
have taken place in the economy since 1981-82, the
Government appointed a Working Group to revise the
existing WPI series and to examine the commodity coverage,
selection of the base year, weighting diagram and other
related issues.
The new series with 1993-94 as the base has as many
as 435 items in the Commodity basket. To reflect the
structural changes in the economy that have taken place
over a decade, a large number of commodities have been
added and a few with diminished importance have been
dropped. In the revised series, “Primary Articles” contribute
98 items, “Fuel, Power, Light and Lubricants” 19 items, and
“Manufactured Products” provide 318 items. The number
of price quotations in the revised series is spread out to
as many as 1918 quotations.
In all, there are 136 new items in the revised series.
Out of that, Primary Articles account for 13, Fuel Group
contributes 1 and Manufactured Products have 122 new
commodities.
The revised weights of the three major groups are
given below. Figures in the parentheses are the weights
of the respective groups in the 1981-82 series.
l Primary Articles : 22.02 (32.30)
l Fuel, Power, Light & Lubricants : 14.23 (10.66)
l Manufactured Products : 63.75 (57.04)
Annual rates of change in the WPI calculated using both
the existing and the new series are given below. It is seen
that the new series starts at a higher level than the old
series accounting for a relatively higher annual rate of
change, but thereafter the two series virtually move in
tandem.
A Comparative Statement of the Annual Indices &
Annual Rates of Change (All Commodities) of the
New Series (Base 1993-94=100) and the Old series
(base 1981-82=100) shifted to base 1993-94.
Annual Average Annual Inflation
WPI (%)
Year New Old New Old
1993-94 100.0 100.0 - -
1994-95 112.6 110.9 12.6 10.9
1995-96 122.3 119.4 8.6 7.7
1996-97 128.0 127.0 4.7 6.4
1997-98 134.4 133.1 5.0 4.8
1998-99 142.4 142.2 6.0 6.8
1999-2000* 146.2 146.0 2.7 2.7
