Use of WPI in calculating Rate of Inflation

WHY INDIA USES WPI FOR CALCULATING INFLATION RATE

WPI – Wholesale Price Index

RPI – Retail Price Index

Most developed countries use the RPI for calculating the rate of inflation, but, in India, we have stuck to the WPI despite many advisories to the Government that RPI is a better indicator of inflation and more useful for the common man to base his budgeting and purchase plans. However, there are many vested interests in sticking it out with WPI. The reasons are many and a few are appended below:

a) The inflation rate is artificially kept low and does not reflect the true situation or ground reality. This allows the Government/RBI to base their interest rate calculations on the lower figure of WPI instead of RPI. The industrialist-banking-politician nexus is at play here and the big gainer is the industrialist and to a certain extent the bankers also. The common man, who is not a big borrower, is taken for a ride as low interest rates are paid on deposits.

b) The Government can fool the people with the low inflation rates saying that we are a stable country. In a country like ours, where elections are a very common feature, this artificially low rate comes handy.

c) The Government can also try to bargain with developed countries or those willing to give assistance to our country that our inflation is very much under control. Most countries are wary of giving assistance or loans or grants to countries with a high inflation rate as there are more risks involved with regard to repayment or a high probability of the monies being misused.

d) The payment of Dearness Allowance and the convening of Pay Commissions are linked to the rate of inflation and by keeping the inflation rate low (using WPI), the Government-Industrialist-Banking nexus gets away with paying a lower rate of DA at any given time.

There will be more reasons for using the WPI instead of RPI and all will be seen to be of advantage to the Government-Industry-Banking nexus. Financial specialists would be more aware of this issue, but, as they work for one of the above members of the nexus, they are not in a position to open their mouths or state the obvious other than at the water fountain, coffee bar or in toilets!