Wholesale Price Index: WPI Full Form, Components, CPI, WPI UPSC

By BYJU'S Exam Prep

Updated on: November 14th, 2023

Wholesale Price Index (WPI Index) is the index that tracks the change in price and inflation of the products sold at wholesale rates or before reaching consumers. The WPI tracks the price rate fixed between two types of entities. It is created for directly buying and selling goods in bulk quantity. The WPI takes into account the prices of various commodities, including primary articles, fuel and power, and manufactured products. It plays a crucial role in policymaking, helping policymakers assess the overall price trends in the economy and make informed decisions regarding monetary and fiscal measures.

Wholesale Price Index (WPI) holds significance in the UPSC Exam as it is an essential economic indicator used to measure inflation and analyze price movements in the wholesale market. To effectively study the WPI for the exam, candidates should focus on understanding its calculation methodology, its components, and its relevance in the Indian economy. They should also stay updated with recent WPI trends and government policies related to inflation and price stability.

Wholesale Price Index

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 history of the Wholesale Price Index (WPI) dates back to the early 20th century. It was first introduced in India in 1902, primarily as a tool for assessing price movements in the agricultural sector. Initially, the WPI covered only a limited number of commodities, mainly related to primary goods such as food grains, cotton, and jute.

Over time, the scope of the WPI expanded to include a wider range of commodities, including manufactured goods. The index underwent various modifications to reflect the changing structure of the Indian economy. In 1970, the WPI underwent a significant revision, shifting the base year to 1961-62 and incorporating improvements in data collection methodologies.

Since then, the WPI has been regularly published by the Office of Economic Adviser, Department for Promotion of Industry and Internal Trade (DPIIT), under the Ministry of Commerce and Industry. It has become an important tool for policymakers, economists, and analysts to monitor price trends, assess inflationary pressures, and make informed decisions related to economic policies.

Aim of WPI Index

The aim of the Wholesale Price Index (WPI) is to monitor and assess price shifts in the wholesale market, specifically in the manufacturing sector, and provide insights into the demand and supply dynamics of goods. It serves as an important economic indicator for understanding the conditions related to wholesale prices in the Indian economy. Following key points about the aim of the WPI Index:

  • Monitoring price shifts: The WPI helps track changes in wholesale prices over time, offering valuable insights into inflationary trends and price movements at the initial stages of the supply chain.
  • Assessing demand and supply: By examining price differences at predetermined levels before reaching the end consumer, the WPI provides a comprehensive view of the industry’s demand and supply dynamics, reflecting market conditions.
  • Determining goods’ price growth: The WPI serves as the starting point to determine the growth trajectory of prices until the goods reach the consumer level, aiding in the analysis of price changes across various stages of the supply chain.
  • Published by the Office of Economic Advisers: The WPI is published by the Office of Economic Advisers under the Ministry of Commerce, making it a reliable and authoritative source of information for policymakers, economists, and analysts

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

  • Manufactured Goods (Chemicals, Apparel, Textiles).
  • Primary Products (Food and Non-Food articles).
  • 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 Sectors of the 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 policy 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 uses 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 have 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 of 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

Wholesale Price Index (WPI) is an economic indicator that measures the average change in prices of goods at the wholesale level. WPI is related to the Indian Economy and is covered under the GS Paper 3 Syllabus of the Mains examination.

To holistically prepare the concept of the WPI Index, one should refer to the Indian Economy Notes which covers the topic in great detail. Familiarity with the WPI and its significance is essential for aspirants preparing for the UPSC exam to gain a comprehensive understanding of the Indian economy and its various aspects.

WPI UPSC Questions

Practicing the UPSC previous year’s question paper helps a lot in analyzing the question pattern and the important aspects of WPI Index. Candidates must religiously refer to the past prelims and mains question papers to understand the paper pattern. Candidates can check the sample questions on Wholesale Price Index below.

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? (A) 1 and 2 only, (B) 2 and 3 only, (C) 1 and 3 only, (D) 1, 2, and 3

Answer: (B) 2 and 3 only

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

Select the correct answer using the codes given below: (A) 1 and 4 only, (B) 2, 3, and 4 only, (C) 1, 2, 3, and 4 only, (D) 3 and 4 only

Answer: (C) 1, 2, 3, and 4 only

Question for UPSC Mains: Discuss the significance of the Wholesale Price Index (WPI) as an economic indicator in monitoring inflationary trends in the Indian economy. How does the WPI differ from other inflation measures such as the Consumer Price Index (CPI)?

Question for UPSC Mains: Analyze the factors that influence the Wholesale Price Index (WPI) in India. Examine how changes in global commodity prices, domestic production levels, and government policies impact the WPI and its implications for the overall economy.

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