Relevance: GS-3: Indian Economy, mobilization of resources, growth, development and employment.
Key phrases: WPI, primary article, manufactured product, food article, fuel and power
Why in News?
- India’s wholesale price index (WPI) for December 2021 eased marginally to 13.56% compared with the record-high of 14.23% last November, but remained in double digits for the ninth consecutive month. WPI is likely to stay in double digits for the rest of FY22, according to experts.
What is the Wholesale Price Index?
- A wholesale price index (WPI) measures and tracks the changes in the price of goods before they reach consumers: goods that are sold in bulk and traded between entities or businesses (rather than consumers).
- Wholesale price indexes (WPIs) are one indicator of a country's level of inflation.
- It is released by the Economic Advisor in the Ministry of Commerce and Industry.
- To align the index with the base year of other important economic indicators such as GDP and IIP, the base year was updated to 2011-12 from 2004-05 for the new series of Wholesale Price Index (WPI), effective from April 2017.
Components of WPI
- Primary articles is a component of WPI, further subdivided into Food Articles and Non-Food Articles.
- Food Articles include items such as Cereals, Paddy, Wheat, Pulses, Vegetables, Fruits, Milk, Eggs, Meat & Fish, etc.
- Non-Food Articles include Oil Seeds, Minerals and Crude Petroleum
- The next major basket in WPI is Fuel & Power, which tracks price movements in Petrol, Diesel and LPG
- The biggest basket is Manufactured Goods. It spans across a variety of manufactured products such as Textiles, Apparels, Paper, Chemicals, Plastic, Cement, Metals, and more.
- Manufactured Goods basket also includes manufactured food products such as Sugar, Tobacco Products, Vegetable and Animal Oils, and Fats.
Reason for high wholesale price index inflation:
- The high rate of inflation in December 2021 is primarily due to rise in prices of mineral oils, basic metals, crude petroleum & natural gas, chemicals and chemical products, food products, textile and paper and paper products etc as compared to the corresponding month of the previous year.
- The food articles segment witnessed a 9.56 per cent surge in December, the data showed. In the month prior to that, this was 4.88 per cent. The spike can be attributed to a sharp rise in vegetable prices.
- Vegetable prices surged 31.56 per cent in December, against a rise of 3.91 per cent in November, the data showed. Prices of potato fell (-)42.10 per cent while that of onions slipped (-)19.08 per cent. On the other hand, prices of fruits grew 15.09 per cent last month, while that of wheat rose 11.41 per cent. Eggs, meat and fish prices rose 6.68 per cent in December while cereals rose 5.10 per cent.
- The fuel and power segment eased to 32.30 per cent in December from 39.81 per cent a month ago. Petrol price rose by 72.11 per cent, HSD (High-Speed Diesel) gained by 68.05 per cent and LPG prices inched by 53.28 per cent.
- The manufactured products segment rose 10.62 per cent last month down from 11.92 per cent in November.
Drawback with Wholesale Price Index
- According to a report on the Relevance of the Wholesale Price Index published in 2021, although the Wholesale Price Index is a much-regarded concept in the field of economics, it has some drawbacks too that are as follows:-
- Primarily, WPI only focuses on goods and commodities that are purchased in bulk or wholesale. While it is a very important aspect, the concept does not include services that are an eminent part of a country's economy. Thus, it does not provide a holistic approach altogether.
- Secondly, the construct of WPI only reflects on the gross purchase performed by a nation's economy. None of the producers or consumers are involved in such a calculation which often gives an unjust idea of inflation of an economy.
- Thirdly, this measure requires the government of an economy to revise the base year on a periodic basis while a country is rapidly evolving in terms of economic growth. This means that considering a specific year as the base year for a long time may lead to inaccurate information.
Way Forward:
- WPI is a useful and effective method when it comes to formulating fiscal policies and economic models. Furthermore, WPI has been in use since 1942.
- Even though it has taken a back seat in recent years after the RBI decided to focus more on CPI, the concept is still a significant model for evaluating economic growth and reflecting on economic trends.
Source: Live Mint
Mains Question:
Q. India’s wholesale price index (WPI) for December 2021 eased marginally to 13.56% compared with the record-high of 14.23% last November, In light of this statement what is the wholesale price index? What is the drawback with Wholesale Price Index? Illustrate.
