A COMPARITATIVE ANALYSIS OF WHOLESALE PRICE INDEX AND CONSUMER PRICE INDEX IN THE INDIAN CONTEXT

Authors Avatar by devashish_bajaj (student)

A COMPARITATIVE ANALYSIS OF WHOLESALE PRICE INDEX AND CONSUMER PRICE INDEX IN THE INDIAN CONTEXT

2011-2012


Table of Content:


CHAPTER I

INTRODUCTION


India, a country which was world’s largest economy for more than 1500 years (though then it was geographically larger) and then was robbed by foreigners and yet the country with largest number of youths is determined to prove that India was a country of golden birds and it always will be.

GROSS DOMESTIC PRODUCT (GDP)

Sum of all goods and services produced in a country within a specific period is called GDP of the country. It is indicator of economic soundness of a country and parameter of mapping the living standers of the people, therefore the more is GDP the better is living standard.

                        2010                                                                             2011

Q1                Q2            Q3                 Q4                           Q1             Q2           Q3                Q4

 7.3%            9.4%        9.3%              8.9%                        8.3%         7.8%        7.7%            6.9%

6.9% GDP growth rate is the minimum in the previous two years. It is caused by high local borrowing costs and of course due to the euro crisis.

In this quarter manufacturing industry’s growth dipped to 2.7 % from 7.2 % in previous quarter, however in order to address inflation, step taken by the reserve bank of India to increase key rates multiple time also hampered our industry badly. With the combined effect of rates hike and the euro crisis, industrial expansion became formidable.

  • $1.632 trillion (nominal: 9th; 2010)
  • $4.057 trillion (PPP: 4th; 2010)
  • GDP per capita $1371(nominal)
  • GDP per capita $3408(ppp)

GDP by sector

Service- 55.2%

Industry- 26.3%

Agriculture- 18.5%

Consumer price Index

In an economy, it is not possible that price of all goods and services will always be the same. It keeps changing and it badly affects a country’s purchasing power.  The CPI is used to measure Inflation is our country. Food inflation in India has always been an issue to take care of. It seems it’s too difficult for the government to bring food inflation under control. By raising key rates the RBI is trying to cope with the situation.

Food inflation in India is around 6.60 % on 8th dec 2011 from 12.30% on November 3 2011.

Unemployment- 9.5%

Export- 225.6 billion (US 12.6%)

Import-357.7 billion (china 12.4%)

FDI stock- 35.6 billion

Revenue- 184 billion

Expense- 270 billion

Gross external debt- 238 billion (2008)

Foreign reserves- 319 billions

In today’s economic scenario there are constant changes and movement in prices. These changes greatly influence the buying and selling decisions of consumers, and thus the economic scenario. Thus, everyone including the government, businesses, producers and consumers want to keep a constant check on prices. However, given the large number of items that are sold and purchased every day, it is difficult to keep track it all.

There are many indices based on prices in different markets, example Producer price index, Wholesale price index, Consumer price index etc. Of the many indices, two are of utmost importance. The first is the Wholesale Price Index (WPI) this is based on the price which is prevailing in the wholesale markets. The second one is the Consumer Price Index (CPI), which is based on the final prices of goods at the retail level. Both these indices are the weighted averages of prices of a specified set of goods and services.

 The use of price indices

These indices are used for various purposes, some of the most important being forecasting in businesses, used by governmental and non-governmental organizations and institutions for their analysis, and by the RBI and the government of India to frame monetary and fiscal policy, etc. The WPI is the chief measurement index in India. In most other countries CPI is used as a chief index. The WPI in India is used to deflate national income and to calculate real output in the economy. Also we find that the exchange rates of Indian currency against the dollar are often adjusted on the basis of WPI

What Is Wholesale Price Index (WPI)?

Wholesale Price Index (WPI) is a price index which represents the wholesale prices of a basket of goods over time. In other words we can say that WPI is an indicator of price changes in the wholesale market. WPI measures the changes in the prices charged by manufacturers and wholesalers. WPI also measures the changes in commodity prices at a selected stages before goods reaches to the retail level; the prices may be those charged by manufacturers to wholesalers or by wholesalers to retailers or by some combination of these and other distributors. It is most importantly used to measure the inflation rate that the country is suffering, i.e. the change in the average price level of goods traded in wholesale market. It is usually released on a weekly basis (usually on Thursdays) to measure the change in the wholesale prices of a set of goods. This day of its release is very important as the stock prices generally tend to fall on that day given the declaration of inflation rate. The WPI is based on the prices of 435 commodities in India, which is an indicator of movement in prices of commodities in all trade and transactions.

Join now!

Advantages of WPI:

  1. WPI has been in use in India since many years so the calculation is fairly easy.
  2. It has over time developed and taken into its circle few of the important factors that need to be considered.
  3. WPI measures inflation at each stage of production.
  4. WPI is the basis for the economic deflation rate.

Disadvantages of WPI:

  1. WPI is said to give lots of erroneous results.
  2. It ignores the service expenses etc which are more dominant expenses today.
  3. It gives the view till the level of the wholesaler. India is a country with ...

This is a preview of the whole essay