Question

Inflation in India is measured on which of the following indexes / indicators ?

• A. Cost of Living Index (CLI)
• B. Consumer Price Index (CPI)
• C. Gross Domestic Product (GDP)
• D. Wholesale Price Index (WPI)

Answer 1

The Correct Option is D

Step 1 — Understand the question:
The question asks: "Inflation in India is measured on which of the following indexes/indicators?"
Here, inflation means the overall rise in the general price level of goods and services in an economy over a period of time. To measure inflation, the government uses certain price indices that track how prices of a selected basket of goods and services change over time.

Step 2 — Recall the common price indices in India:
India generally uses the following indicators:
1. Consumer Price Index (CPI) — This measures the average change in retail prices paid by consumers for goods and services. It is widely used for assessing cost of living and salary adjustments.
2. Wholesale Price Index (WPI) — This measures the average change in the prices of goods traded in bulk at the wholesale level. It captures price changes before goods reach the retail market.
3. GDP Deflator — A broad measure that compares the ratio of nominal GDP to real GDP, reflecting price changes across the entire economy.

Step 3 — Identify the official indicator:
In India, for a long time, the official measure of inflation was based on the Wholesale Price Index (WPI). The WPI tracks the movement of wholesale prices of a representative basket of goods including primary articles, fuel, power, and manufactured products.

Step 4 — Clarify the difference with CPI:
Although the Consumer Price Index (CPI) is increasingly being used for monetary policy decisions by the Reserve Bank of India (RBI), when we talk specifically about the measurement of inflation in India at the national statistical level, the correct traditional answer is the Wholesale Price Index (WPI).

Step 5 — Final conclusion:
Therefore, inflation in India is measured on the basis of the Wholesale Price Index (WPI).

Answer: The correct option is (D) : Wholesale Price Index (WPI).