The Wholesale Inflation to Scare Indian Economy

The Wholesale Price Index inflation popularly known as WPI inflation in the Indian economy grew by 7.39 per cent in the month of March 2021. During the same month of March 2020, the WPI inflation in the economy stood at 0.42 per cent. In the months of January and February 2021, the WPI inflation stood at 2.51 per cent and 4.17 per cent respectively. This clearly indicates that the wholesale inflation in the economy is elevating. It is the highest WPI inflation in the last eight and half years since October 2012 when the WPI inflation stood at 7.4 per cent. The food inflation stood at 5.28 per cent.

From the details of constituents of the index, it is clear that this elevation in WPI can be attributed to the increasing fuel and power prices in the economy. The inflation in the power and fuel component of the index was 10.25 per cent in the month of March followed by the manufactured products at 7.34 per cent. It should be noted that the weight of the fuel and power in the index is 13.15 per cent. Apart from this crude petroleum and natural gas is also a component of the primary articles in the WPI. This makes the increase in the prices of petroleum products (petrol and high speed diesel) even more important which have increased by more than 18 per cent in the month of March.

The WPI inflation in the economy has overtaken the Consumer Price Index (CPI) inflation after a very long time and this is happening when the economy is at the risk of losing momentum and India possibly not posting a double digit growth during the current fiscal year. The coronavirus pandemic is resurregent with more than 2 lakh new cases every day and may hit the mark of 3 lakh new cases a day any time. In the response to the pandemic the cover of lockdown is increasing every day. This will slow down economic activities for sure.

It should be noted that in the month of March 2021 the CPI inflation stood at 5.52 per cent. However, the Reserve Bank of India (RBI), the banking regulator of India does not track WPI inflation to target the inflation in the Indian economy but the inflation in the manufactured products is finally going to spill over to the CPI too in coming months as the manufactured products are meant to be consumed by the end consumers. Even a look at the inflation in the prices of manufactured food products, the inflation in the last six months have been higher than the WPI and CPI.

To moderate the WPI inflation, India has to change the policy preferences about the petroleum products and leave its greed of collecting more taxes from the petroleum products which India has been pursuing for more than a year.

Rajeev Upadhyay

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