UPSC Prelims 2020 Q67: Indian Economy – Inflation & Price Indices
- (a) 1 and 2 only
- (b) 2 only
- (c) 3 only
- (d) 1, 2 and 3
Answer: (a) 1 and 2 only
Explanation
CPI vs WPI: Key Differences
| Statement | Claim | Verdict | Detail |
|---|---|---|---|
| 1 | Food weight higher in CPI than WPI | TRUE | CPI: Food ~45% weight. WPI: Food ~21% weight. CPI captures household consumption patterns; WPI producer-focused. |
| 2 | WPI doesn't capture services; CPI does | TRUE | WPI = goods only (agriculture, manufacturing). CPI includes services (transport, healthcare, education, communications). |
| 3 | RBI adopted WPI as primary inflation measure | FALSE | RBI uses CPI (retail inflation) as primary measure since 2015 Monetary Policy Committee shift. WPI is secondary/monitoring. |
Statements 1 and 2 are correct. Answer: (a) 1 and 2 only.
Answer: (a) 1 and 2 only.
Why each option is right or wrong
- (a) CORRECT. Statements 1 (higher food weight in CPI) and 2 (WPI excludes services) are true. Statement 3 is false (RBI uses CPI as primary since 2015).
- (b) Incorrect. Statement 3 is false (RBI primary measure is CPI, not WPI).
- (c) Incorrect. Statements 1 and 2 are also correct.
- (d) Incorrect. Statement 3 is false.
Key point
CPI vs WPI: CPI = retail (consumer-focused, services included, food-heavy). WPI = wholesale (producer-focused, goods-only, lower food weight). RBI shifted to CPI as primary inflation measure (2015).
Remember
Food weight is higher in the Consumer Price Index (CPI) than in the Wholesale Price Index (WPI) (Statement 1 correct). WPI does not capture services while CPI does (Statement 2 correct). RBI has adopted CPI, NOT WPI, as its primary measure of inflation since 2015 (Statement 3 wrong).
Common mistakes
- Confusing which measure RBI uses. Changed to CPI in 2015; WPI is supplementary.
- Assuming weights are same across indices. Weights differ significantly (food, sectors).
- Missing that CPI is multi-dimensional (urban, rural, combined); WPI is single series.
Exam tip
India's inflation measures: CPI-Combined (primary, RBI target 4% +/- 2%), CPI-IW (workers), WPI (supplementary), Core inflation (excluding food/fuel). Multiple measures for comprehensive view.
Sources
- Ministry of Statistics - CPI & WPI Methodology
- RBI - Monetary Policy Framework (2015)