Skip to main content

New Wholesale Price Index (WPI) Index

 

 

 

Last month the government revised the wholesale price index (WPI), making it more broad-based and representative of inflation in the present context. The new index will cover 676 items compared to 435 earlier. The number of price quotations that will be used for producing the index has been increased from 2,000 to 5,500. The base year has also been changed from 1993-94 to 2004-05. The immediate impact of this revision was a drop in the August inflation figure from 9.5 per cent (according to the old index) to 8.5 per cent.

 

Change in product basket


The new index will now measure price changes in 241 more items than the earlier index, which measured price changes in 435 items. Of the 435 items, the government has retained only 259 and added 417 new items (62 per cent) to the new index.

 

The index comprises three product categories - primary articles, fuel and manufactured products. The manufactured products category has seen the maximum revamp with 169 items from the earlier basket being dropped and 406 new ones being added. While the fuel basket remains unchanged, the primary articles category has seen seven items being dropped and 11 new ones being added.

 

Items such as ready-made food, computer stationery, dish antennas, ice cream, condensed milk, soft drinks and VCDs have been added, while some items such as TV sets (B&W), scooters, plastic items, printing items and fireworks have been dropped or revised. "Seasonal items now do not show up in the WPI once they disappear from the market, and their weights are redistributed across the WPI. Thus, these factors may exacerbate seasonality in the new series," says Tushar Poddar, economist at Goldman Sachs. According to Jay Shankar, chief economist and vice-president, Religare Capital Markets, the new index is more in line with people's current consumption patterns. "Many items such as alarm clocks that were used in the early nineties are no longer used today. Similarly many new items such as mobile phones that are used today were not in existence earlier. Therefore, to make the index more relevant to today's context, there was a need to overhaul it," he says.

 

Weightage revised


In the new index, the weightage of manufactured products is 65 per cent (up from 63.8 per cent in the earlier index), of primary articles is 20.1 per cent (down from 22 per cent) and that of fuels is 14.9 per cent (up from 14.2 per cent). The drop in August inflation figure can be attributed to the drop in weightage of food articles in the revised index. In the new index, food articles have been assigned a weightage of 14.3 per cent, down from 15.4 per cent earlier.

 

The number of price quotations to be used has been increased from 1,981 to 5,482. Says Jay Shankar: "The more quotations you have, the better and more accurate the inflation numbers become."

 

In India, WPI is the most closely tracked inflation index. Being most commonly quoted in the media, it influences both public perception of how high inflation is and policymakers' decision making (particularly monetary policy). As the decades go by, people's consumption patterns change. The WPI then must undergo periodic makeovers to make it more representative and contemporary. This is what the new index should hopefully achieve.

 

New WPI - Weights and Items

 

 

 Weight

 

 

  

 Number of Items

 

 

 

 

 

 

 

 

 

 

 

 2004-05

 

 1993-94

 

 2004-05

 

 1993-94

 

 Common

 

 Dropped/ Revised

 

 New Items

 

PrimaryArticles

 

20.1

 

22.0

 

102

 

98

 

91

 

7

 

11

 

FuelIndex

 

14.9

 

14.2

 

19

 

19

 

19

 

0

 

0

 

ManufacturedProducts

 

65.0

 

63.8

 

555

 

318

 

149

 

169

 

406

 

AllCommodities

 

100.0

 

100.0

 

676

 

435

 

259

 

176

 

417

 

Source: Office of the Economic Advisor

 

Popular posts from this blog

Retirement planning from a long-term perspective

Invest In Tax Saving Mutual Funds Online Download Tax Saving Mutual Fund Application Forms Buy Gold Mutual Funds     `HOW green was my valley'. This title comes from a movie I had watched many years ago. A little boy's journey into adulthood and the story of a Welsh valley's turn of-the-century descent from pristine paradise to despoiled coal mining.   I thought of the title because it is comparatively reflective of a person's life ­ the glorious years when he is earning and the sun down years when he is not having his regular job and, hence, his living standards comes down. The reason is a combination of things. Inflation of food items, transport, increase in health related costs in the later years of life and increase in expenses in almost all basic amenities of life. In India, the social security system is almost non-existent. In some states, wherever it is available, the scales of benefits are extremely modest...

LIC's JEEVAN SHIKHAR

  LIC's Jeevan Shikhar is a participating, non-linked, saving cum protection single premium plan wherein the risk cover is ten times of Tabular Single Premium. The proposer will have an option to choose the Maturity Sum Assured. The premium payable shall depend on the chosen amount of Maturity Sum Assured and age at entry of the life assured. This plan also takes care of liquidity need through its loan facility. The plan will be open for sale for a maximum period of 120 days from the date of launch. 1.   BENEFITS   : a) Death Benefit: On death during first five policy years: Before the date of commencement of risk   :   Refund of Single Premium without interest. Single Premium mentioned above shall not include any extra amount if charged under the policy due to underwriting decision and taxes. After the date of commencement of risk   : "Sum Assured on Death" equal to 10 times the tabular single premium shall be payable. On death after completion of five policy years but b...

Investment Strategy - What is Sector Rotation Theory?

Buy Gold Mutual Funds Invest Mutual Funds Online Download Tax Saving Mutual Fund Application Forms Call 0 94 8300 8300 (India)   The economy goes through cycles : it expands for a few years and then contracts. Study of historical data suggests that different sectors tend to perform well on the stock markets during different stages of the economic cycle. While history never repeats itself exactly, some broad patterns tend to recur. Investors can take advantage of the sector rotation theory to move their money from those sectors that have seen their best times to those that are likely to do well in future.   The person who developed the sector rotation theory is Sam Stovall, chief investment strategist at Standard & Poor's. He developed this theory by studying data on economic cycles going as far back as 1854 provided by the National Bureau of Economic Research ( NBER ) of the US.   When trying to correlate stock-market perfor...

Rajiv Gandhi Equity Savings Scheme (RGESS) set for launch this week

The finance ministry is set to notify the Rajiv Gandhi Equity Savings Scheme ( RGESS ) this week.   Though Finance Minister PChidambaram had approved on September 21, the scheme announced in this year's Budget, and had said that the revenue department will notify the scheme and the Securities and Exchange Board of India ( Sebi ) would issue relevant circulars within two weeks, it is yet to become operational.   A senior finance ministry official said the revenue department was expected to notify the scheme any day now to attract retail investors to the equity segment.   He added that Sebi was not required to issue any circular for the operationalisation of the scheme and that after the issuance of the revenue department's notification, investors would be able to avail of the benefits of the scheme.   The official accepted that implementation of the scheme had been delayed due to the deliberations on inclusion of mutual funds ( MF ) in it.   ...

CNX Midcap vs BNP Paribas Midcap Fund

BNP Paribas Midcap Fund - Invest Online   Te  performance of BNP Paribas Midcap Fund  – which has across the last 3 years generated superior returns over the benchmark – especially when the markets have gone down the fund has handsomely outperformed the benchmark preserving the capital of the investors. The fund has been able to do this only due to the superior stock selection process ( BMV approach) that is diligently followed at BNPP.   Highlights of BNP Paribas Mid Cap Fund:   Investment Objective : BNP Paribas Mid Cap Fund gives an investor exposure to invest in the various quality midcap stocks. The fund also has some exposure to large as well as small cap stocks.   Investment Approach : BMV ( Quality and scalability of Business →Good Management → Reasonable Valuation ) with Bottom-up stock picking.   Most of the investors are way happier if the fund that they have invested in is a significant Outperformer in tough times than in Good ti...
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now