Difference between WPI and PPI

Criteria Producer Price Index (PPI) Wholesale Price Index (WPI)

Definition Changes in prices of Goods and Services Changes in the prices of Goods at
paid/received by the manufacturer the wholesale level
Includes Input PPI and Output PPI
Coverage Both Goods and Services Only Goods
Indirect Taxes such as No. Conceptually, WPI includes
GST included? indirect taxes. But in India WPI
does not include indirect taxes

Note:
• The present WPI series (2011-12) does not consider the indirect taxes.
• In June 2021, the "Committee for the Revision of WPI Series from 2011-12 to 2017-18" headed by Ramesh Chand
has laid down a roadmap for transition from WPI to PPI. The Committee has suggested that we need to start
compiling PPI on an experimental basis.
 Understanding WPI

Important Points:
Weightage of different Categories
Weightage of Food (24%): WPI-Food Index
Primary Food Articles + Manufactured Food Products.

Primary Articles Weightage of Fuel (15%):

13% • Crude Petroleum and Natural Gas under Primary
23% Articles (2%)
• Coal, Electricity, LPG, Kerosene, Petrol, Diesel,
Manufactured ATF (13%)
Products
Weightage of Manufactured Non-Food Products (55%)

64% Fuel and Power

 Understanding CPI

Important Points:
Weightage of Different Categories • Weightage of Food and Beverages (46%)

Food and • Weightage of Fuel (9.5%):

Beverages • Electricity, Kerosene, LPG, Coal, Dung cake
under Fuel and Light (7%)
Pan, Tobacco • Petrol and Diesel under “Transport and
28% and Intoxicants Communication” as part of Miscellaneous
Clothing and Category (2.5%)
46% Footwear
Weightage of Fuel
Housing
Fuel and Light (7%): Electricity,
7% Kerosene, LPG, Coal
Fuel and Light Petrol and Diesel (2.5%):
10% Transportation under
7% 2% Miscellaneous Category
Miscellaneous
Consumer Food Price Index (CFPI)

CFPI: Covers 10
Commodities under Food
and Beverages Category
Excludes Non-Alcoholic
Beverages and Prepared
Meals, Snacks etc.
 Understanding CPI
CPI- Headline
Inflation: Covers all
Weightage of Different Categories Categories
Housing
Not covered under Consumer Food Price Index
CPI-Rural Food and Covers 10 Commodities under Food
Beverages and Beverages Category
Excludes Non-Alcoholic Beverages
Pan, Tobacco and Prepared Meals, Snacks etc.
28% and Intoxicants
Clothing and Core Inflation:
46% Footwear Covers all the categories except
(a) Food and Beverages
Housing (b) Fuel and Light (Electricity,
7% Kerosene, LPG, Coal, Dung cake)
Fuel and Light
10% Refined Core Inflation:
7% 2% Covers all the categories except
Miscellaneous (a) Food and Beverages
(b) Fuel and Light (Electricity, Kerosene,
LPG, Coal, Dung cake)
(c) Petrol and Diesel under
Miscellaneous Category
 Other Variants of CPI
Variants of CPI Published by Base Remarks
Year
CPI-AL Labour Bureau 1986-87 MGNREGA wages linked to CPI-AL
CPI-RL Labour Bureau 1986-87 N/A
CPI-IW Labour Bureau 2016 Used to calculate Dearness Allowance (DA)
FAO Food Price Index
 Divergence between WPI and CPI
Between June 2019- Feb 2021→ WPI < CPI
Between Mar 2021 – Dec 2021→ WPI > CPI
Why has CPI Inflation lowered? Why WPI Inflation has increased?
• Decline in Inflation in Food and Beverages which accounts • Low Base Effect
for 46% weightage in CPI • Increase in Prices of Primary Articles, Fuel and
• Decline in Vegetable Prices, Pulses etc. Power and Manufactured Products
Supply side measures taken by the Government Cost-push Inflation due to supply side bottlenecks and
• Reduction in Import duties on Pulses and Edible Oils higher international prices in metals, raw materials, Fuel
• Buffer stock of Onion and Pulses etc.
• Bringing Soya meal under Essential Commodities Act, 1955
Main Drivers of Inflation in 2021-22 Main Drivers of Inflation in 2021-22
Fuel and light Fuel and Power ( Weightage of 13% in WPI)
Transportation Manufactured Products ( Weightage of 64% in WPI)
Low Weightage of 8% in CPI
 Practice MCQs

Practice MCQ Practice MCQ

With reference to Drug Pricing in India, consider the following
statements:
1. The National Pharmaceutical Pricing Authority (NPPA) can
fix the prices of only those medicines which are listed
under National List of Essential Medicines (NLEM).
2. The NPPA cannot reduce the prices of the medicines which
are listed under NLEM.
With reference to Drug Pricing regime in India, consider the
following statements:
1. The Drug Price Control Orders (DPCO) are issued under the
Essential Commodities Act, 1955.
2. The Patented drugs cannot be brought under the Price
control regime for the initial period of 5 years.

Which of the statements given above is/are correct? Which of the statements given above is/are correct?
(a) 1 only (a) 1 only
(b) 2 only (b) 2 only
(c ) Both 1 and 2 (c ) Both 1 and 2
(d) Neither 1 nor 2 (d) Neither 1 nor 2
Year Qua Price Nominal GDP Real GDP GDP Deflator
ntity s (Current Year (Current Year
Quantity * Current Quantity * Base (Nominal GDP divided by Real
Year Prices) Year Prices) GDP) * 100
Base Year 5 5 25 25 100
2011-12
2012-13 6 6 36 30 (36/30) * 100 = 120
2013-14 8 8 64 40 (64/40) * 100= 160
 Criteria CPI GDP Deflator
Commodities Covered Fixed basket of Goods and Services All the Goods and Services
consumed by people produced within India.
Assignment of Pre-fixed No explicit assignment of
Weightage weightage to different Goods
Imported Goods Yes. No.
Covered
Basket of Goods Remains Same Changes.
Frequency Monthly Quarterly.
 Effects of Inflation

Fixed Income group Loss to the fixed income group as the purchasing power of currency reduces.
Exports Higher prices of Domestic goods discourages exports.
Imports Higher prices of domestic goods encourages cheaper imports.
Rupee Value Short run: Higher Inflation→ Decrease in Exports and Increase in Imports→ Rupee Depreciation.
Long run: Rupee Depreciation→ Imports become costly→ Imported Inflation
Employment Moderate Inflation: As the inflation rises to moderate level, it leads to increase in Employment.
Higher Inflation: Leads to increase in Unemployment.
Bond Holders As the Bond provides for fixed coupon payments, the Bond holders tend to lose due to higher Inflation.
Yield rates on Bonds Lower Demand for Bonds→ Lower Bond Prices→ Higher Bond Yields.
Creditors and Debtors (Borrowers) benefit as they repay less in terms of real value.
Debtors
Impact on • Increase in Tax collection due to Fiscal Drag.
Government • Benefits the Government as it is major debtor.
 Bracket Creep and Fiscal Drag

Economic Boom

Higher rate of Inflation

Bracket Creep
Bracket Creep
Increase in Wages Situation where inflation pushes taxpayers into
higher tax brackets leading to Fiscal Drag
Increase in Income Levels

Progressive Taxation: People move

into higher Tax Brackets

Fiscal Drag
Fiscal Drag
Increase in Tax Collection • Slowdown in the Economic Growth due to
Decline in Aggregate Demand increase in Tax collection and decline in
demand
• Takes place due to Bracket Creep
Decline in Economic Growth
 Measures to check Volatility in prices

Market Intervention Scheme

Price Stabilization Fund (PSS) Operation Greens
(MIS)
Mandate: Coverage: Coverage:
Check volatility in prices of Onion, Horticultural and other Perishable Extended from TOP (Tomato,
Potato and Pulses commodities. Onion and Potato) to TOTAL
Ministry: When is it taken up?: Nature of Assistance
Ministry of Consumer Affairs On request of State Govt. when Subsidy for Transportation and
Fund Manager: SFAC Mkt price falls. hiring of Storage facilities
Implementation: PSF Management Financing: Implementation:
Committee Losses suffered shared on 50:50 Ministry of Food Processing
basis between Centre and State. Industries

Fiscal Policy Measures
Fiscal Consolidation Policy:
Increase the Tax rate
Reduce the Government’s expenditure
Measures to Check Inflation
Monetary Policy Measures
Contractionary Monetary Policy
Increase the Policy rates
Sell G-Secs as part of Open
Market Operations (OMOs) to
suck out excess money
Check Rupee Depreciation
through Forex Sell/Buy Swaps
Administrative Measures
• Crack down on Black
marketing and Hoarding
through Essential
Commodities Act, 1955
• Ban on Exports
• Decrease in Customs duty to
facilitate more imports.
• Ban on Futures Trading
• Build sufficient buffer stock
 Practice MCQ
The Economic Survey 2019-20 has highlighted about Cobweb
Phenomenon in Pulses. What does it deal with?
(a) Decrease in the Production of Pulses
(b) Decrease in the area under Pulses
(c) Volatility in the prices of Pulses
(d) Demand-Supply mismatch in Pulses
Practice MCQ
The "Base Effect" in the measurement of rate of Inflation in an
economy refers to
(a) Change in the basket of commodities for the measurement
of Inflation
(b) Rate of Inflation in present year depends upon rate of
Inflation in previous year
(c) Change in the Base year for the measurement of Inflation
(d) Change in the rate of Inflation due to increase in monetary
base.

Practice MCQ Practice MCQ

Which among the following best describes the concept of With respect to Operation Greens, consider the following
"Inflation Tax"? statements:
(a) Increase in tax burden due to higher rate of Inflation 1. The Operation Greens seek to check the volatility in the prices of
(b) Increase in Inflation due to decrease in tax rates Tomato, Onion and Potato (TOP) only.
(c) Increase in the tax revenue of Government due to higher rate 2. The scheme is implemented by the Ministry of Consumer Affairs.
of Inflation
(d) Decrease in purchasing power of Currency 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
 Practice MCQ
Which among the following can lead to greater divergence
between Headline and Core Inflation in India?
(a) Increase in Food and fuel prices
(b) Decrease in Food and Fuel prices
(c) Stability in prices of Non-volatile commodities
(d) Both (a) and (b)
Practice MCQ
The Philips' curve deals with the relationship between which
among the following macro-economic parameters?
(a) Tax rate and Tax collection
(b) Inflation and Tax collection
(c) Inflation and Trade balance
(d) Inflation and Unemployment
Practice MCQ
Which among the following International agencies publishes the
"Food Price Index"?
(a) United Nations World Food Programme
(b) World Trade Organization
(c) International Food Policy Research Institute (IFPRI)
(d) Food and Agriculture Organization (FAO)
Practice MCQ
With reference to Consumer Price Index (CPI) and Consumer Food
Price Index (CFPI), consider the following statements:
1. Both these Indices are calculated by National Statistical Office
(NSO) by using the base year of 2012.
2. While CPI takes into account 6 different categories, the CFPI
takes into account only the category of "Food and Beverages".
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
 Practice MCQ Practice MCQ
Which among the following economic conditions is/are denoted Consider the following statements related to GDP Deflator:
by Stagflation? 1. The GDP Deflator is measured as ( Real GDP/ Nominal GDP)
1. Decline in GDP Growth rates * 100.
2. Increase in the rate of Inflation 2. Unlike CPI, the GDP Deflator shows the rate of inflation in all
3. Decrease in Unemployment the Goods and services produced within the Economy.
3. The GDP deflator does not take into account imports.
Select the correct answer using the code given below:
(a) 1 and 2 only Which of the statements given above is/are correct?
(b) 1 and 3 only (a) 1 only
(c) 2 and 3 only (b) 2 and 3 only
(d) 1, 2 and 3 (c) 1 and 2 only
(d) 1, 2 and 3

Practice MCQ
Which among the following Inflation Index is presently linked to Practice MCQ
MGNREGA wages? Which among the following actions is/are can be taken by the
(a) CPI- Rural Labour (CPI-RL) Government to control the inflation in the Indian Economy?
(b) CPI-Agricultural Labour (CPI-AL) 1. Reduction in the Expenditure
(c) CPI- Rural 2. Increase in Indirect Tax Rates
(d) Wholesale Price Index 3. Increase in Policy rates

Select the correct answer using the code given below:

(a) 1 only
(b) 1 and 2 only
(c) 1 and 3 only
(d) 1, 2 and 3
 Practice MCQ
Consider the following statements:
1. Deflation refers to general decline in the rate of Inflation
accompanied by marginal increase in prices of Goods and
services.
2. Disinflation refers to general decline in the prices of Goods
and Services.
Practice MCQ
Which among the following commodities is/are taken into
consideration for the calculation of Consumer Food Price Index
(CFPI) in India?
1. Major Cereals such as Rice and Wheat
2. Beverages such as Tea and Coffee
3. Prepared meals and snacks.

Which among the statements given above is/are correct? Select the correct answer using the code given below:
(a) 1 only (a) 1 only
(b) 2 only (b) 1 and 2 only
(c) Both 1 and 2 (c) 2 and 3 only
(d) Neither 1 nor 2 (d) 1, 2 and 3

Practice MCQ Practice MCQ

Which among the following best describes the term “Shoe Which among the following can lead to increase in CPI-Core
leather costs” normally associated with Inflation in an Inflation in the Indian Economy?
economy? 1. Increase in Prices of Food and Beverages.
(a) Increase in prices of Goods and Services 2. Increase in Prices of Petrol and Diesel.
(b) Increase in rate of Interest by the Central Bank to check 3. Increase in Prices of Fuel and Light Category such as LPG,
Inflation Kerosene, Electricity etc.
(c) Increase in cost of holding money due to inflation.
(d) Increase in tax rates by the Government to check Inflation. Select the correct answer using the code given below:
(a) 1 and 2 only
(b) 2 only
(c) 1 and 3 only
(d) 1, 2 and 3
 Practice MCQ Practice MCQ
The Refined Retail Core Inflation can be calculated by excluding Which among the following is/are necessarily associated with
(a) “Food and Beverages” category under CPI Disinflation in an economy?
(b) “Food and Beverages”, “Fuel and Light” Categories under CPI 1. Decrease in Prices of Goods and Services in comparison to
(c) “Food and Beverages”, “Fuel and Light”, “Petrol/Diesel from previous year
Miscellaneous category” under CPI 2. Negative Rate of Inflation
(d) “Food and Beverages”, “Fuel and Light”, “Entire Miscellaneous 3. Decrease in rate of Inflation
category” under CPI.
Select the correct answer using the code given below:
(a) 1 only
(b) 1 and 2 only
Practice MCQ (c) 3 only
Which among the following can be considered as factors (d) 1 and 3 only
contributing to Structural Inflation in a country?
1. Lack of Cold Chain Infrastructure in Agriculture
2. Excessive Deficit Financing
3. Shortage of Essential Resources
4. Lack of Adequate Forex Reserves

Select the correct answer using the code given below:

(a) 1 only
(b) 1 and 3 only
(c) 1, 3 and 4 only
(d) 1, 2, 3 and 4
 Practice MCQ Practice MCQ
Which among the following best describes the relationship Which among the following agencies publishes the All India
between Inflation and Employment in a country? House price Index (HPI)?
(a) Increase in rate of Inflation leads to decrease in (a) NITI Aayog
Unemployment (b) National Statistical Office (NSO)
(b) Increase in rate of Inflation leads to Increase in (c ) Office of Economic Advisor
Unemployment (d) Reserve Bank of India
(c) Increase in rate of Inflation leads to decrease in
Unemployment to a certain level and beyond that Practice MCQ
Unemployment remains constant Consider an example. Earlier, you were able to buy 2 kg of Rice at
(d) Increase in rate of Inflation leads to increase in Rs 40. Later, due to increase in the prices of Rice, you are able to
Unemployment to a certain level and beyond that buy only 1 kg of Rice at Rs 40. Which among the following
Unemployment remains constant economic terms best describes the above scenario?
(a) Inflation Premium
Practice MCQ (b) Inflation Tax
Consider the statement: The rate of Inflation is the present (c) Inflationary Momentum
month of the year is extremely low due to high base effect. (d) Fiscal Drag
What does the statement denote?

(a) Rate of Inflation in the previous month was high

(b) Rate of Inflation in the corresponding month of previous
year was high
(c) Rate of Inflation in the present month is higher due to
change in base year
(d) Rate of Inflation in the corresponding month of the base
year was high
 TAXATION

Name of the Chapter Taxation

Relative Importance High
Previous Year • Prelims 2021- Fiscal stimulus Package
Questions • Prelims 2020- Statements under FRBM Act, 2003
• Prelims 2019- Present Status of India’s External Debt
• Prelims 2018- Goods Exempted under GST, Equalization Levy, FRBM Review Committee
• Prelims 2017- Advantages of GST; Trends in Tax Revenue and Fiscal Deficit
• Prelims 2016- BEPS; Steps to reduce Budget deficit; Components of Capital Account
 Criteria Fiscal Policy Monetary Policy
Formulated by Department of Economic Affairs, Ministry of Reserve Bank of India
Finance
Frequency Yearly Bi-monthly
Objective Multi-faceted objective: Raise Revenue; Allocation Ensure Price Stability and Promote Growth
of Expenditure; Redistribution of Income; Welfare
of Poor and Vulnerable sections; Ensure Fiscal
Federalism; Promoting Growth; Control Inflation
Tools used Taxes and Government Expenditure Policy Tools such as Repo, SLR, CRR etc.
Types of Policies Fiscal Stimulus Policy (During Slowdown) Expansionary Monetary Policy (During Slowdown)
Increase Government’s Expenditure and Decrease Reduce Policy rates
Tax Rates
Contractionary Monetary Policy (During Inflation)
Fiscal Consolidation Policy (During Inflation) Increase Policy Rates.
Reduce Government’s Expenditure and Increase Tax
Rates
Targets Laid down under the FRBM Act, 2003 Inflation Targeting Framework under RBI Act, 1934
Political Yes No.
Influence
TAXATION
 Budget Estimates of Estimates of
Revised Estimates of
Receipts and Receipts and
Receipts and
Expenditure of Present Expenditure of next
Expenditure of Present
Financial Year Financial Year
Financial Year

Actual Receipts and

Expenditure of Previous
Financial Year
Consolidated Fund of India (Article 266)
Includes: Revenues + Borrowings +
Recovery of Loans
Restriction: No Amount can be drawn
without the prior approval of
Parliament
Contingency Fund of India (Article 267)
Placed at the disposal of President to
meet unforeseen circumstances.
Corpus: Rs 30,000 Crores.
Restriction: Need for Ex-post Facto
approval of Parliament
Public Account of India (Article 266)
Includes:
• Money held by the Government in
Trust- Provident Fund, Small
Savings, Post Office Deposits etc.
• Money set aside for Specific
purpose
• Central Road and Infra Fund
• Pradhan Mantri Swasthya
Suraksha Nidhi
• Prarambik Shiksha Kosh
• Madhyamik and Uchhatar
Shiksha Kosh
• NDRF and NIF
Restriction:
• Parliamentary approval not
needed for withdrawal of money
held by Government in trust
• Parliamentary approval needed
for withdrawal of money set aside
for specific purpose