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In India, inflation is calculated on the basis of wholesale price index which was calculated in 1993.

Is the consumption pattern today similar to that in 1993?

Consider this:

How much we used to spend on transport and communication in 1993? Compare your phone bill of 93 with all cell and landline bills of 2007! Earlier some families used to have vehicle. Now every family has 2-3 vehicles.

 What was the spread of service tax in 1993? Today tickting, beauty parlor, phone bills etc have service tax. Doesn’t this account for inflation?

 What do you eat? The WIP is full of commodities which are not at all significant today. With the villegers extensively using sugar as a sweetner, having jaggery in WIP with high weightage is not correct. And half of the city these days survives on Bread. However, increase in bread prices is not considered in inflation calculation.

 And finally EDUCATION! Seven years back I completed my engineering in 30K. Today, 30K will not even suffice for one year fees. With more and more people going for higher education and education getting costlier day by day (literally), can we afford to keep this out of inflation?

But the government will still refer the old WPI document. Because it helps them to show that inflation is only 5 to 6%.

Categories: Economy Tags: ,
  1. February 25, 2008 at 4:56 am

    valid point made!
    in fact india is the only major economy today that still uses WPI as a base for inflation calculations. most developed countries moved to CPI (consumer price index) using a basket of consumer commodities as a base for working out inflation.

    great going pranav, enjoyed reading both your posts. hope there will be more to come. am putting up a link to this in my blog.

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