Focus: GS 3 ;Indian Economy and issues relating to planning, mobilization, of resources, growth, development and employment.
Why in News?
- The All-India Consumer Price Index Numbers for Agricultural Labourers and Rural Labourers (Base: 1986-87=100) increased by 11 points and 10 points to stand at 1037 (One thousand and thirty seven) and 1043 (One thousand and forty three) points respectively.
- The major contribution towards the rise in general index of Agricultural Labourers and Rural Labourers came from food, with (+) 9.20 points and (+) 8.95 points respectively mainly due to rise in prices of arhar dal, masur dal, ground nut oil, mustard oil, vegetables and fruits etc.
About Inflation;-
- Inflation refers to the rise in the prices of most goods and services of daily or common use, such as food, clothing, housing, recreation, transport, consumer staples, etc.
- Inflation measures the average price change in a basket of commodities and services over time.
- Inflation is indicative of the decrease in the purchasing power of a unit of a country’s currency. This could ultimately lead to a deceleration in economic growth.
- However, a moderate level of inflation is required in the economy to ensure that production is promoted.
- In India, inflation is primarily measured by two main indices — WPI (Wholesale Price Index) and CPI (Consumer Price Index) which measure wholesale and retail-level price changes, respectively.
About Consumer Price Index;-
- It measures price changes from the perspective of a retail buyer. It is released by the National Statistical Office (NSO).
- The CPI calculates the difference in the price of commodities and services such as food, medical care, education, electronics etc, which Indian consumers buy for use.
- The CPI has several sub-groups including food and beverages, fuel and light, housing and clothing, bedding and footwear.
Four types of CPI are as follows:
- CPI for Industrial Workers (IW) (Base Year 2001).
- CPI for Agricultural Labourer (AL) (Base Year 1986-87).
- CPI for Rural Labourer (RL) (Base Year 1986-87).
- CPI (Rural/Urban/Combined).
Of these, the first three are compiled by the Labour Bureau in the Ministry of Labour and Employment. Fourth is compiled by the National Statistical Office (NSO) in the Ministry of Statistics and Programme Implementation.
Base Year for CPI is 2011-2012.
The Monetary Policy Committee(MPC) uses CPI data to control inflation.
Consumer Price Index Items Weightage representation in below image;-
Difference between WPI Vs CPI in below image;-
| Basis For Comparison | Wholesale Price Index (WPI) | Consumer Price Index (CPI) |
| Meaning | WPI, amounts to the average change in prices of commodities at the wholesale level | CPI, indicates the average change in the prices of commodities, at the retail level. |
| Published by | Office of Economic Advisor (Ministry of Commerce & Industry) | Central Statistics Office (Ministry of Statistics and Programme Implementation) |
| Measures prices of | Goods only | Goods and Services both |
| Measurement of Inflation | The first stage of the transaction | The final stage of the transaction |
| Prices paid by | Manufacturers and wholesalers | Consumers |
| How many items covered | 697 (Primary, fuel & power and manufactured products) | 448(Rural Basket) 460 (Urban Basket) |
| What type of items covered | Manufacturing inputs and intermediate goods like minerals, machinery basic metals etc. | Education, communication, transportation, recreation, apparel, foods and beverages, housing and medical care |
| Base year | 2011-12 | 2012 |
| Used by | Only a few countries including India | 157 countries |
| Data released on | Primary articles, fuel, and power (Weekly basis) & overall (monthly basis since 2012) | Monthly basis |
Extra Info;-
About Headline Inflation;-
- Headline Inflation is the measure of total inflation within an economy. It includes price rise in food, fuel and all other commodities.
- The consumer price index (CPI) represents the cost of a basket of goods and services consumed by a typical household, most countries, therefore, use CPI as a measure of headline inflation.
About Monetary Policy Committee;-
- The Monetary Policy Committee (MPC) is a committee of the RBI, which is entrusted with the task of fixing the benchmark policy interest rate (repo rate) to contain inflation within the specified target level.
- The RBI Act, 1934 was amended by Finance Act (India), 2016 to constitute MPC to bring more transparency and accountability in fixing India’s Monetary Policy.
- The policy is published after every meeting with each member explaining his opinions.
- The committee is answerable to the Government of India if the inflation exceeds the range prescribed for three consecutive months.
- Suggestions for setting up a Monetary policy committee is not new and goes back to 2002 when YV Reddy committee proposed to establish an MPC, then Tarapore committee in 2006, Percy Mistry committee in 2007, Raghuram Rajan committee in 2009 and then Urjit Patel Committee in 2013.
Composition and Working;-
- The committee comprises six members – three officials of the RBI and three external members nominated by the Government of India.
- The meetings of the Monetary Policy Committee are held at least 4 times a year and it publishes its decisions after each such meeting.
- The Governor of RBI is the chairperson ex officio of the committee.
- The Reserve Bank’s MPC was given the target of keeping inflation at 4% with a tolerance limit of 2%. This meant that inflation should be between 2% and 6%.
- Decisions are taken by a majority with the Governor having the casting vote in case of a tie.
- They need to observe a “silent period” seven days before and after the rate decision for “utmost confidentiality”.
About National Statistical Office (NSO);-
- The Government has cleared formation of an overarching body —National Statistical Office (NSO) — through the merger of the National Sample Survey Organisation (NSSO) and Central Statistics Office (CSO) under the Ministry of Statistics and Programme Implementation (MoSPI).
- The new NSO as an agency was envisaged firstly by Rangarajan Commission to implement and maintain statistical standards and coordinate statistical activities of Central and State agencies as laid down by the National Statistical Commission (NSC).
- This commission had also recommended setting up of the NSC, headed by a person with a Minister of State-level designation, to serve as a nodal and empowered body for all core statistical activities of the country.
- According to recent order, NSO will be formed with the merger of NSSO and CSO under MoSPI.
- This recent restructuring seems to be a reaction to the resignations tendered by the member and acting Chairman of the NSC earlier this year.
