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With reference to Wholesale Price Index (WPI), consider the following statements:
It covers both services as well as goods.
It includes indirect taxes to account for the impact of fiscal policy.
Which of the statements given above is/are correct?
- a)1 only
- b)2 only
- c)Both 1 and 2
- d)Neither 1 nor 2
Correct answer is option 'D'. Can you explain this answer?
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With reference to Wholesale Price Index (WPI), consider the following...
- Wholesale Price Index (WPI) measures the average change in the prices of commodities for bulk sale at the level of early stage of transactions. The index basket of the WPI covers commodities falling under the three major groups namely Primary Articles, Fuel and Power and Manufactured products. (The index basket of the present 2011-12 series has a total of 697 items including 117 items for Primary Articles, 16 items for Fuel & Power and 564 items for Manufactured Products.) The prices tracked are exfactory price for manufactured products, mandi price for agricultural commodities and ex-mines prices for minerals. Weights given to each commodity covered in the WPI basket is based on the value of production adjusted for net imports. WPI basket does not cover services. Hence statement 1 is not correct.
- In India WPI is also known as the headline inflation rate. In India, Office of Economic Advisor (OEA), Department of Industrial Policy and Promotion, Ministry of Commerce and Industry calculates the WPI.
- The Government periodically reviews and revises the base year of the WPI as a regular exercise to capture structural changes in the economy and improve the quality, coverage and representativeness of the indices. The Wholesale Price Index (WPI) series in India has undergone six revisions in 1952-53, 196162, 1970-71, 1981-82, 1993-94 and 2004-05 so far. The base year of All-India WPI has been revised from 2004-05 to 2011-12 on 12 May 2017 to align it with the base year of other macroeconomic indicators like the Gross Domestic Product (GDP) and Index of Industrial Production (IIP). The current series is the seventh revision.
- Wholesale price index calculated with 2011-12 base year does not include taxes in order to remove the impact of fiscal policy. This also brings the present WPI series closer to Producer Price Index, as is practised globally. A Producer Price Index reflects the change in average prices that producers get. The exclusion of indirect taxes would also ensure the continuity and compatibility of new WPI series with the GST. WPI is used as a deflator for nominal macroeconomic aggregates like GDP and IIP. Since the nominal estimates are computed at basic price which does not include product taxes, excluding indirect taxes from WPI makes it a compatible and appropriate deflator. Hence statement 2 is not correct.
Most Upvoted Answer
With reference to Wholesale Price Index (WPI), consider the following...
Explanation:
Wholesale Price Index (WPI) is a measure of the average change in the prices of goods and services that are traded in bulk and at the wholesale level. It is one of the key indicators of inflation in an economy.
Statement 1: It covers both services as well as goods.
This statement is incorrect. WPI only covers the prices of goods that are traded in bulk and at the wholesale level. It does not cover the prices of services.
Statement 2: It includes indirect taxes to account for the impact of fiscal policy.
This statement is correct. WPI includes indirect taxes like excise duty, sales tax, and VAT to account for the impact of fiscal policy on prices.
Therefore, the correct answer is option D, neither 1 nor 2.
Wholesale Price Index (WPI) is a measure of the average change in the prices of goods and services that are traded in bulk and at the wholesale level. It is one of the key indicators of inflation in an economy.
Statement 1: It covers both services as well as goods.
This statement is incorrect. WPI only covers the prices of goods that are traded in bulk and at the wholesale level. It does not cover the prices of services.
Statement 2: It includes indirect taxes to account for the impact of fiscal policy.
This statement is correct. WPI includes indirect taxes like excise duty, sales tax, and VAT to account for the impact of fiscal policy on prices.
Therefore, the correct answer is option D, neither 1 nor 2.
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With reference to Wholesale Price Index (WPI), consider the following statements: It covers both services as well as goods. It includes indirect taxes to account for the impact of fiscal policy. Which of the statements given above is/are correct?a)1 onlyb)2 onlyc)Both 1 and 2d)Neither 1 nor 2Correct answer is option 'D'. Can you explain this answer?
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