Wholesale Price Index: WPI Full Form, Components, WPI Index in India

Wholesale Price Index

The Wholesale Price Index, also known as WPI, measures the changes in wholesale prices in India. The manufacturers and the wholesalers pay the prices based on the market demand. The Wholesale Price Index tracks the price change in commodities at the main stages before it reaches the retailers.

Regarding the compilation and release of this index, the office of the economic advisor is considered the nodal office. Reserve Bank of India used to refer to WPI to make most of its policy decisions before 2014. However, it was used correctly for the calculation of inflation.

History of Wholesale Price Index

The first edition of the wholesale price index was issued in 1942, having the base year 1939. The wholesale price index has been changed with the base year from 1952-53, 1961-62, 1970-71, 1981-82, 1993-93, and 2004-05.

The WPI’s current base year running is 2011-12, and it is the sixth revision in the history of the base year of a wholesale price index.

Aim of WPI Index

The Wholesale Price Index can be taken as follows – when a wholesaler sells large quantities of any product, the WPI calculates its average price changes. This index examines the difference in the product prices at the prescribed level (pre-determined) before it actually reaches a certain level. The aim of the Wholesale Price Index is to –

• To monitor the price shifts that show the industry’s demand and supply of manufacturing products.
• To help assess all the major and minor conditions related to the wholesale prices in the Indian economy.

The wholesale price index is the starting point for determining the growth of the goods’ prices until it reaches the consumer. The office of economic advisors of the Ministry of Commerce publishes the index.

Categories Under Wholesale Price Index

The WPI is released every 14th of the month, so it has a time of two weeks in between. It publishes the data collected from manufacturing units and institutions across the country.

Wholesale Price Index Notes

There are three main categories of goods covered by the index, which are-

1. Manufactured goods (Chemicals, apparel, Textiles)
2. Primary Products (Food and Non-Food articles)
3. Fuel and Power (Gasoline, Petrol, LPG).

Components of the Wholesale Price Index

There are three sections of WPI. They are primary articles, manufactured goods, and fuel and power.

• The primary articles include food particles, minerals, and vegetables.
• The fuel and power include energy-related products like LPG, Petrol, Diesel, CNG, etc., and
• The manufactured goods include those manufactured in industries like processed sugar, textile manufacturing, etc.

Importance of Wholesale Price Index

The wholesale transaction inflation estimates are provided for the entire Indian economy.

• The government can intervene anytime in between to control inflation, especially in vital goods, before the retail price increases.
• It is additionally used for deflating the nominal productions with high-frequency values.
• In commercial contracts, the wholesale price index is used for indexing.
• A macro indicator like the wholesale price index is used by global investors to make decisions related to Investments.
• The government also uses the wholesale price index based on inflation estimates to form trade and fiscal policies.
• The wholesale price index is also used as a tool to deliver the building work, raw materials, and machinery to escalate the clauses.
• Most businesses use the provisions of price adjustment in their long-term sales and purchase agreement to deal with the prices in an effective manner.
• Government banks, industries, and business circles use the wholesale price index to capture price movements in a comprehensive manner.
• Wholesale price index movements are often correlated with monetary and fiscal policy changes.
• The movement of the wholesale price index also influences the formation of trade policies, fiscal policies, and other economic policies.

Wholesale Price Index in India

The inflation rate is generally calculated using wholesale and consumer prices. The Ministry of Commerce and industry use the wholesale price index to calculate the inflation rates in India. The consumer price index measures the prices for a basket of consumer goods and services like medical care, food, and transportation.

There was an inflation of 34.68% in September 1974, which was the highest inflation recorded in the history of India. The lowest inflation rate recorded in India was 11.31% in May 1976.

Base Year of WPI Index

From 2004-05 to 2011-12, the wholesale price index base year was updated in May 2017. Several key features have been added to WPI with the base 2011-12-

• There are now 697 items in the basket which has been raised from 676.
• A new wholesale price index definition excludes taxes. It is done to eliminate fiscal policy’s impact by aligning the new WPI series with the producer price index. It aligns with International practices too.
• Statistically robust geometric means are used instead of arithmetic in the 2004- 05 series wholesale price index.
• Using the wholesale price index – food index, how food commodity prices are changing at the producer level is clearly visible.
• Two food price indices in India could be used to monitor food inflation more effectively. The wholesale price index and consumer price index are the two food indices.

Consumer Price Index

In India, the consumer price index is the index that helps to measure the retail inflation rates. In the economy, four consumer price indices cover different socioeconomic groups in society.

• Among the four indexes, the consumer price index for industrial workers, agriculture workers, rural laborers, and urban non-manual employees was the highest following.
• The New CPI series is now used all over the states in India as well as separately for rural-urban localities and both combined too.
• The publication of consumer price indices is made by the central statistics office and the ministry of statistics and program implementation.

Difference between WPI and CPI

Understanding the difference between WPI and CPI is crucial for a better understanding these economic terms.

Parameters	WPI	CPI
Meaning	It is the change in the prices of wholesale products that are sold in bulk.	The change in the prices that the customer pays to the retailers.
Publisher of Index	The Ministry of Commerce and Industry publishes it.	The National Statistical Office publishes it- Ministry of Statistics and Program Implementation and Labour Bureau.
Base Year for CPI and WPI	2011-12	2012
Frequency	The primary articles, energy products, and power are published weekly, and the overall index is published monthly.	Published on the 14th date of every month.
Source	The weights of the WPI item are based on the production values.	The weights of the CPI item are based on the daily household expenditures.
Measurement	It is measured at the first stage of the transaction.	It is measured at the final stage of the transaction.
Price Paid	Price is paid by wholesale dealers and manufacturers.	The customers pay the price.
The number of Items	697 items include the primary article, fuel, and manufactured products.	448 items in rural areas and 460 Items in urban areas.
Weightage of Item	The food group accounts for about 24.4% of total weight.	The food group weighs about 39.06%.
Service Status	No services are included in WPI.	Housing, education, and medical care services are included in CPI.
Commodities	minerals, basic metals, types of machinery, and manufacturing.	Education, communications, housing, recreation, transportation, and beverages.

Wholesale Price Index UPSC

The Wholesale Price Index is related to the Indian Economy and is covered under the GS Paper 3 Syllabus of the UPSC Mains. It is a very important topic to learn from the IAS prelims perspective.

To holistically prepare the concept of the WPI Index, one should refer to the Indian Economy Books and Indian Economy Notes.

WPI Index UPSC Questions

You can also practice the questions from the UPSC Previous Year Question Papers to understand the exam pattern better.

Question– India has experienced persistent and high food inflation recently. What could be the reasons?

1. Due to a gradual switchover to the cultivation of commercial crops, the area under the cultivation of food grains has steadily decreased in the last five years by about 30%.
2. As a consequence of increasing incomes, the consumption patterns of the% people have undergone a significant change.
3. The food supply chain has structural constraints.

Which of the statements given above is correct?

1. 1 and 2 only
2. 2 and 3 only
3. 1 and 3 only
4. 1, 2, and 3

Answer– Option B

Question– In India, in the overall Index of Industrial Production, the Indices of Eight Core Industries have a combined weight of 37-90%.

Which of the following is among those Eight Core Industries?

1. Cement
2. Fertilizers
3. Natural gas
4. Refinery products
5. Textiles

Select the correct answer using the codes given below:

1. 1 and 5 only
2. 2, 3, and 4 only
3. 1, 2, 3, and 4 only
4. 1, 2, 3, 4 and 5

Answer– Option C

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