MONEY AND BANKING (Part – I)

As per the question period, option (c) was the correct answer, while at present option (b) is the right answer. In India, Consumer Price Index (CPI) and Wholesale Price Index (WPI) are two major indices for measuring inflation. The WPI was main index of inflation in India till April 2014, when Reserve Bank of India (RBI) adopted new CPI (Combined) as the key measure of inflation. It is noteworthy that WPI is based on wholesale prices for primary articles, administered prices for fuel items and ex-factory prices for manufactured products, while CPI is based on retail prices and it measures change over time in general level of prices of goods and services that households acquire for the purpose of consumption.

In India, the rate of inflation is generally measured on the basis of Consumer Price Index (CPI), Wholesale Price Index (WPI) and Labour Cost of Living Index. At present, RBI uses Consumer Price Index (CPI) (Combined) as the key measure of inflation.

At present, RBI uses Consumer Price Index (CPI) (Combined) to measure headline inflation and its base year is 2012 =100. The Wholesale Price Index (WPI) was main index of inflation in India till April 2014, when RBI adopted new CPI (combined) as the key measure of inflation.

At present, RBI uses Consumer Price Index (CPI) (Combined) to measure headline inflation and its base year is 2012 =100. The Wholesale Price Index (WPI) was main index of inflation in India till April 2014, when RBI adopted new CPI (combined) as the key measure of inflation.

At present, RBI uses Consumer Price Index (CPI) (Combined) to measure headline inflation and its base year is 2012 =100. The Wholesale Price Index (WPI) was main index of inflation in India till April 2014, when RBI adopted new CPI (combined) as the key measure of inflation.

As per the question period option (a) was the correct answer. See the explanation below.
At present, RBI uses Consumer Price Index (CPI) (Combined) to measure headline inflation and its base year is 2012 =100. The Wholesale Price Index (WPI) was main index of inflation in India till April 2014, when RBI adopted new CPI (combined) as the key measure of inflation.

In May 2016, the Reserve Bank of India (RBI) Act, 1934 was amended to provide a statutory basis for the implementation of the flexible inflation targeting framework. The amended RBI Act also provides for the inflation target to be set by the Government of India, in consultation with the Reserve Bank, once in every five years. Accordingly, the Central Government has notified in the Official Gazette 4 percent Consumer Price Index (CPI) inflation target with tolerance level of +/-2 percent for the period from 5 August, 2016 to 31 March, 2021.

Prior to the amendment in the RBI Act in May, 2016 the flexible inflation targeting framework was governed by an Agreement on Monetary Policy Framework between the Government and the RBI of 20 February, 2015.

Note: As per a notification issued on 31 March, 2021, the Central Government retained the CPI inflation target at 4 percent (with the upper tolerance level of 6 percent and the lower tolerance level of 2 percent) for the five year period 1 April, 2021 to 31 March, 2026.

Inflation is the rate at which the value of currency is falling and consequently the general level of prices of goods and services is rising. The annual rate of inflation in India during the 1991 calender year based on the monthly average of the Wholesale Price Index (WPI) was about 12.7%. Average annual wholesale inflation rates based on WPI (Base Year 2011-12) during the recent financial years are as follows:

Year (April-March Inflation (in Percent)

2019-20 - 1.7

2020-21 - 1.3

2021-22 - 13.0

2022-23 - 9.41

2023-24 (Provisional) - (-)0.70

Consumer Price Index (CPI), also known as the cost of living index, measures the average change in retail prices. The weightage of food (food articles and products) in CPI (Combined) is 45.9%, while in Wholesale Price Index, it is 24.4%. Hence, statement (1) is also correct.

WPI measures the changes in the prices of goods sold and traded in bulk of wholesale business to other business. So, it does not include services. While, CPI includes both goods and services. Hence, statement (2) is also correct.

On the recommendation of Urjit R. Patel Committee, the RBI has adopted CPI (Combined) as its key measure of inflation and to decide on changing the key policy rates, since April 1, 2014. Hence, statement (3) is incorrect.

Consumer Price Index (CPI) is a comprehensive measure used for estimation of price changes in a basket of goods and services representative of consumption expenditure. It is designed to measure the changes over time in general level of retail prices of selected goods and services that households purchase for the purpose of consumption. In India, segment specific CPIs, namely CPI (IW - for Industrial Workers), CPI (AL- for Agricultural Labourers) and CPI (RL - for Rural Labourers) are compiled by the Labour Bureau, while CPI (Urban), CPI (Rural) and CPI (Combined; Urban + Rural) are compiled and released by the National Statistical Office (NSO). CPI (Combined) is taken as the measure of inflation while formulating Monetary Policy by the RBI/MPC.

Hence Statement 1 and 3 are correct while Statement 2 is incorrect.

Wholesale Price Index (WPI) is computed and released by the Office of Economic Advisor (OEA), Department for Promotion of Industry and Internal Trade (formerly DIPP), Ministry of Commerce and Industry.