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Past Issue • Jan-Mar 2015

Inflation in India: Will the switch from WPI to CPI give us a truer picture?

In this article, Pranai Agarwal examines the Indian government’s decision to move from its historical reliance on the wholesale price index (WPI) to the consumer price index (CPI), to measure the inflation rate in India. He observes that the move is a wise one, and that it will provide us with a more accurate picture of the economic situation in the country. However, the CPI, in its current form, is imperfect and has its limitations, and these must be addressed as soon as possible. What is inflation to a common man? Is it about the daily haggling and cursing over the rising vegetable prices or is it about the rich and almighty sighing over the increase in the price of a BMW 6 Series from INR 11.5 million to INR 13 million? However you define inflation, the truth is that, it hurts the people as a whole and yet we cannot figure out a realistic solution to deal with it. This is primarily due to the multiplicity and complexity of indices used by India to measure price rise. Former Reserve Bank of India (RBI) Governor, D Subbarao, in a 2010 speech at the Peterson Institute for International Economics in Washington DC, summed up the problem in these words: “In India, we have one wholesale price index and four consumer price indices. There are ongoing efforts at a technical level to reduce the number of consumer price indices, and I believe the technical issues are not insurmountable. But that still will not give us a single representative inflation rate for an emerging market economy with market imperfections, diverse geography and 1.2 billion people.”

ABOUT THE AUTHORS

  • Pranai-Agarwal

    Pranai Agarwal

    Pranai Agarwal is a student of ISB’s Postgraduate Programme in Management.
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