Wholesale Price Index (WPI) – UPSC Notes

Wholesale Price Index (WPI) measures changes in the overall price of goods before they are sold at retail. WPI represents the price of a basket of wholesale goods, i.e., goods sold in bulk and traded between organizations. It does not focus on goods purchased by the consumers. In simple terms, WPI measures the changes in the price of goods sold and traded in bulk by wholesale businesses to other businesses.

The Office of the Economic Adviser (OEA) in the Department for Promotion of Industry and Internal Trade under the Ministry of Commerce and Industry compiles and releases the Wholesale Price Index. The new series of the Wholesale Price Index with the base year 2011-12 is effective from April 2017. The Office of the Economic Adviser (OEA) releases Wholesale Price Indices on a monthly basis.

WPI captures the average movement of wholesale prices of goods and is primarily used as a GDP deflator. It is an easy and convenient method to calculate inflation. Some countries use WPI changes as a measure of inflation. Before 2014, the Reserve Bank of India (RBI) used WPI to make most of its policy decisions. But now, India has adopted a new Consumer Price Index (CPI) to measure inflation. In April 2014, the RBI adopted CPI as its key measure of inflation.

How does Wholesale Price Index (WPI) help?

The objective of the Wholesale Price Index is to monitor price movements that reflect supply and demand in industry, manufacturing and construction. WPI also helps in analyzing both macroeconomic and microeconomic indicators. It influences stock and fixed-price markets.

Wholesale Price Index (WPI) provides estimates of inflation at the wholesale transaction level for the economy overall. Also, it helps in timely intervention by the government to monitor inflation before the price hike spills over to retail prices. The government uses WPI-based inflation in preparation for fiscal, trade, and other economic policies. The Fiscal and Monetary policies are greatly influenced by Wholesale Price Index.

Components of Wholesale Price Index (WPI)

The monthly WPI shows the average price changes of goods usually expressed in ratios or percentages. The Base Year for WPI is 2011-12. WPI is based on the wholesale prices of a few relevant commodities available. The commodities are chosen based on their significance in the region. These represent different strata of the economy and are expected to provide a comprehensive WPI value. The total weight of the WPI involves several components that account for the items included in WPI in India. The components of the WPI with their weightage in WPI are as follows:

All CommoditiesWeight (%)
Primary Articles22.6
Fuel & Power13.2
Manufactured Products64.2

The first component concentrates on Primary Articles, which include Food Articles, Non-Food Articles, Minerals, and Crude Petroleum & Natural gas. Primary Articles account for 22.6% of the total weight.

The second component focuses on Fuel and Power, which accommodates goods such as kerosene, diesel, LPG, coal, and electricity. This category accounts for a total of 13.2%.

The third component involves Manufactured Goods. This category includes goods such as chemical and related products, metal products, raw metals, alloys, machinery, etc. The component of Manufactured Goods accounts for 64.2% of the total weight alone.

The WPI numbers are compiled with data received from institutional sources and selected manufacturing units across the country. The primary components of the Wholesale Price Index are as follows:

  1. Primary Articles
    • Food Articles
      • Cereals
      • Paddy
      • Wheat
      • Pulses
      • Vegetables
      • Potato
      • Onion
      • Fruits
      • Milk
      • Eggs, Meat & Fish
    • Non-Food Articles
      • Oil Seeds
    • Minerals
    • Crude Petroleum & Natural gas
      • Crude Petroleum
  2. Fuel & Power
    • LPG
    • Petrol
    • HSD
  3. Manufactured Products
    • Manufacture of Food Products
    • Vegetable And Animal Oils and Fats
    • Manufacture of Beverages
    • Manufacture of Tobacco Products
    • Manufacture of Textiles
    • Manufacture of Wearing Apparel
    • Manufacture of Leather and Related Products
    • Manufacture of Wood and of-Products of Wood and Cork
    • Manufacture of Paper and Paper Products
    • Manufacture of Chemicals and Chemical Products
    • Manufacture of Pharmaceuticals, Medicinal Chemicals and Botanical Products
    • Manufacture of Rubber and Plastics Products
    • Manufacture of other Non-Metallic Mineral Products
    • Cement, Lime and Plaster
    • Manufacture of Basic Metals
    • Mild Steel – Semi-Finished Steel
    • Manufacture of Fabricated Metal Products, Except Machinery and Equipment

Significance of Wholesale Price Index (WPI)

  • The inflation rate calculated based on the Wholesale Price Index is an important measure to monitor the dynamic movement of prices.
  • The changes in fiscal and monetary policy are often linked to WPI.
  • WPI is used as a deflator of various nominal macroeconomic variables, including Gross Domestic Product (GDP).
  • WPI-based inflation estimates are also used by the government in the formation of trade, fiscal and other economic policies.
  • WPI is also utilized for the purpose of escalation clauses in the supply of raw materials, machinery, and construction work.

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