UPSC Prelims 2020 · Question 77 of 100
UPSC Prelims 2020 question on CPI vs WPI
- ExamUPSC CSE
- Year2020
- PaperGeneral Studies Paper I
- SubjectIndian Economy
- TopicInflation
- DifficultyEasy
- TypeStatement
Consider the following statements:
1. The weightage of food in Consumer Price Index (CPI) is higher than that in Wholesale Price Index (WPI).
2. The WPI does not capture changes in the prices of services, which CPI does.
3. Reserve Bank of India has now adopted WPI as its key measure of inflation and to decide on changing the key policy rates.
Which of the statements given above is/are correct?
Show answer
Answer: A. 1 and 2 only
Verdict
Correct statements: 1 and 2 → Option (a).
Statement by statement
Statement 1 – CORRECT: The primary index that tracks the change in retail prices of essential goods and services consumed by Indian households is the Consumer Price Index or CPI. 200 Goods and services are taken with a selected basket. The weightage of food in the CPI is close to 50% (The weightage for food is lower in WPI). Hence statement 1 is correct.
Statement 2 – CORRECT: While retail inflation looks at the price at which the consumer buys the product, WPI is measured based on prices at the wholesale level. WPI measures the changes in the prices of goods sold and traded in bulk by wholesale businesses to other businesses. The wholesale market is only for goods — you cannot buy services on a wholesale basis. So WPI does not include services, whereas the retail price index (CPI) does. Hence statement 2 is correct.
Statement 3 – INCORRECT: Based on the suggestions of the Urjit Patel committee, monetary policy (MP) in India is to be formulated in reference to the CPI (instead of WPI) based inflation. The RBI has adopted CPI (not WPI) as its key measure of inflation and to decide on changing the key policy rates. Hence statement 3 is not correct.