Inflation India: A sketchy picture

With the double-digit figures of inflation in India, the question that needs to be asked today is whether the current measure of inflation is a true indicator of the state of the economy. The inflation rate today stands at 11.5%, the highest in 13 years and the basis of calculation in India has been the WPI. The WPI calculates the average prices of a certain basket of consumption goods over a 1-year period. It thus covers the industrial sector. But this method of calculation raises doubt. The incidence of price-hike always falls on the end-user who pays a price higher than the wholesale price. Thus a true figure of inflation would require a calculation based on the CPI. This measure calculates the consumer prices paid for commodities and would thus be more realistic. Secondly, almost 23% of the GDP in India comes from the services sector and the price consumers pay for it does not get accounted for. As many developed countries like USA, UK, Japan etc have adopted the CPI method, India is still considering switching to this method. The difficulty here lies in getting updated figures from time-to-time. Thus I believe that the current inflation figures seem to be highly misleading.