Inflation Calculation India

8/9/2019 Inflation Calculation India

1/25

Inflation in India

.


2/25

. Some economists assert that

India's method of calculating

inflation is wrong as there areserious flaws in themethodologies used by the

government.


3/25

. A research paper arguing

that the governmenturgently needs to shift themethod of calculating

inflation.


4/25

. Saying that there are

serious flaws in the presentmethod of calculatinginflation, the paper India

should adopt methodologiesin developed economies.


5/25


6/25

. Most developed countries use

the Consumer Price Index (CPI)

to calculate inflation.


7/25

Wholesale Price Index (

WPI

WPI is the index that isused to measure the changein the average price level ofgoods traded in wholesale

market.


8/25

. In India, a total of 435

commodities data on price level

is tracked through WPI which isan indicator of movement inprices of commodities in all

trade and transactions.


9/25

. It is also the price index which is

available on a weekly basis with the

shortest possible time lag only twoweeks.

The Indian government has takenWPI as an indicator of the rate of

inflation in the economy.


10/25

Consumer Price Index (

CPI)

CPI is a statistical time-seriesmeasure of a weighted average

of prices of a specified set ofgoods and services purchasedby consumers.


11/25

. It is a price index that tracks

the prices of a specified basket

of consumer goods andservices, providing a measureof inflation.


12/25

. Economists Shunmugam and

Prasad say it is high time that

India abandoned WPI andadopted CPI to calculateinflation.


13/25

. India is the only major country that

uses a wholesale index to measure

inflation. Most countries use the CPI as a

measure of inflation, as this actuallymeasures the increase in price that a

consumer will ultimately have to payfor.


14/25

. "CPI is the official barometer of

inflation in many countries such

as the United States, theUnited Kingdom, Japan,France, Canada, Singapore and

China.


15/25

. The governments there review

the commodity basket of CPI

every 4-5 years to factor inchanges in consumptionpattern," says their research

paper.


16/25

. It pointed out that WPI does not

properly measure the exact price

rise an end-consumer willexperience because, as the samesuggests, it is at the wholesalelevel.


17/25

. The paper says the main problem

with WPI calculation is that more

than 100 out of the 435commodities included in the Indexhave ceased to be importantfrom the consumption point ofview.


18/25

. India constituted the last WPI

series of commodities in 1993-94;

but has not updated it till now thateconomists argue the Index haslost relevance and can not be thebarometer to calculate inflation.


19/25

. Shunmugam says WPI is supposed to

measure impact of prices on

business. "But we use it to measurethe impact on consumers.

Many commodities not consumed byconsumers get calculated in the

index.


20/25

. And it does not factor in

services which have assumed

so much importance in theeconomy," he pointed out.


21/25

But why is India not switching over to the

CPI method of calculating inflation?

Finance ministry officials pointout that there are many

intricate problems from shiftingfrom WPI to CPI model.


22/25

. First of all, they say, in India,

there are four different types of

CPI indices, and that makesswitching over to the Indexfrom WPI fairly 'risky and

unwieldy.'


23/25

. The four CPI series are:

CPI Industrial Workers;

CPI Urban Non-Manual Employees;

CPI Agricultural labourers;

and CPI Rural labour.


24/25

. Secondly, officials say the CPI

cannot be used in India

because there is too much of alag in reporting CPI numbers.


25/25

. The WPI is published on a weekly

basis and the CPI, on a monthly

basis.

And in India, inflation iscalculated on a weekly basis.

Date post:	30-May-2018
Category:	Documents
Upload:	gaurav-khemka
View:	212 times
Download:	0 times

Inflation Calculation India

Documents