Wholesale Price Index (WPI)

In an ever-changing economic landscape, prices constantly fluctuate. The Wholesale Price Index (WPI) plays a vital role as a deflator for various nominal macroeconomic indicators, including Gross Domestic Product (GDP). Additionally, WPI-based inflation assessments are vital in shaping the government's policies related to trade, fiscal matters, and other aspects of the economy.

What is WPI?

The Wholesale Price Index (WPI) is a statistical measure that tracks the average price changes of goods traded in bulk within a country's domestic market. WPI serves as a gauge of inflation at the wholesale level, providing insights into price movements for businesses before these changes affect consumers.

Image - Index Numbers of Wholesale Price in India for the Month of December 2023 ( Source - Office of the Economic Adviser, Ministry of Commerce & Industry, Government of India)

Components of WPI

The WPI comprises of three major groups:

1. Primary Articles 
2. Fuel and Power  
3. Manufactured Products

Here is how they are further categorised -

Scope of the WPI

1. Extensive Coverage: WPI aims to provide a holistic view of price movements in the economy.
2. Focus on Domestic Market: WPI focuses on goods traded within the domestic market, making it a valuable tool for assessing the country's internal trade price trends.
3. All-Inclusive Approach: WPI aims to include all bulk transactions, ensuring no significant sector is left out.
4. Sectoral Representation: WPI categorizes goods into various sectors, such as agriculture, manufacturing, mining, and fuel. This segmentation allows for a detailed analysis of price changes within specific industries.
5. Input and Output Prices: WPI covers input and output prices and helps businesses and policymakers understand cost pressures and profit margins across industries.
6. Sensitivity to Market Dynamics: WPI is sensitive to changes in supply and demand conditions, making it a valuable tool for monitoring market dynamics and assessing economic stability.

Evolution of WPI - Timeline Summary

Pre-1947: The Quick WPI series was initiated (Base: August 1939), with a limited product basket and ex-factory prices and duties.

1947-1993: Regular revisions with new base years (1952-53, 1961-62, 1970-71, 1981-82, 1993-94) reflecting economic expansion and diversification.

2004-2011: Base year 2004-05 WPI continued revisions but still used ex-factory prices with duties.

2011-12 WPI: This change aimed to capture a more accurate picture with -

• Transaction prices focus: Instead of ex-factory, using "basic/list price minus trade/wholesale discounts."
• Tax exclusion: Removal of indirect taxes like excise duty for more accurate pricing.

Importance of WPI

WPI is a critical indicator for understanding:

• Macroeconomic conditions: It reflects inflationary trends in the wholesale sector, impacting overall production costs and potentially influencing future consumer prices.
• Policy decisions: WPI data can inform government policies on trade, fiscal measures, and economic interventions, considering their impact on businesses and the broader economy.
• Market analysis: Businesses can use WPI data to track price changes in their sector, adjust pricing strategies, and make informed investment decisions.
• Supply and demand dynamics: Rising WPI signals potential shortages or booming demand, prompting businesses to adjust production, pricing, and inventory to navigate the changing market. Conversely, a falling WPI suggests weak demand or ample supply.

WPI Data Collection

The collection of backlog data for most items of the Manufacturing Products for WPI calculation is done under the Collection of Statistics (CoS) Act, 2008. Here are the data sources with respect to different product categories - 

• Manufactured products - Private Manufacturing Units and some government agencies like the Office of Economic Advisor (OEA)
• Primary Articles and Fuel & Power - Administrative Ministries/Departments, Public Sector Undertakings (PSUs) and State Government Departments
• Food Articles - Ministry of Agriculture & Farmers Welfare and National Horticulture Board
• Mineral oils - Ministry of Petroleum and Natural Gas and Oil Marketing Companies (OMCs) 
• Electricity - Central Electricity Authority 
• Coal - Coal India Limited (CCL)

Key Takeaways

• WPI captures bulk transactions across diverse sectors like agriculture, minerals, energy, etc.
• Focuses on "actual transaction prices" paid by businesses, excluding taxes and capturing market dynamics.
• WPI adapts to the changing Indian economy with revised product baskets and methodologies (e.g., moving to transaction prices).
• It is used for policymaking, business strategies, and analyzing inflation and economic trends.

Explore these online degree programmes–