By Ruma Dubey

The house help had a pretty austere Diwali celebration this year. With the price of pulses hitting Rs.200-mark, vegetables continuing to remain expensive and fruits getting out of bounds for most, she is wondering how can she cope up with life? Living in Maharashtra, not Mumbai but Thane, she has to now grapple with a 50% water cut and ever increasing electricity bills. She says she does not save a single penny despite having taken up two more extra jobs. And this is not an isolated example of just this house help…this is the story across India.  For people who had earlier loved up a rung on the economic ladder, they have all come down two rungs, wondering what went wrong.

When this is the real, bitter truth at the grass root, one cannot help but wonder what is the relevance of the Wholesale Price Index (WPI), which dropped for a 12th straight month in October, falling an annual 3.81% mainly due to easing fuel prices. The fuel prices fell 16.32% (YoY) while prices of manufactured goods declined 1.67%. Food prices in October, however, rose 2.44%. Well, at least we see some bottoming out of the WPI and some indication of the food prices being up.

But it makes wonder whether this Index holds any relevance at all as it seems to have no connection with reality. How can the price indices be so low when in reality we are all paying so much more? Or take the case of Consumer Price Index (CPI). This index, to some extent does show the true picture – CPI rose to 4-month high of 5% in October v/s 4.4% in September. This 5% was like a psychological threshold, which now seems ready to be broken. This rise in CPI was attributed to prices of pulses, which rose 42.2% on account of domestic shortages.

The big question which vexes all – why this huge difference between the CPI and WPI? Well, looking at things from an economic perspective, WPI is the measure of price of manufactured goods but does not measure services. It was originally supposed to measure the price at the factory gate but it is now more a measure of prices at the wholesale mandis. It includes a basket of 676 commodities, covering onions to chemicals and capital equipments. CPI tracks retail prices paid by consumers for finished products. There is a major difference between the WPI and the CPI as the prices differ due to subsidies, sales tax, excise duties, distribution costs.

Many analysts say that this difference between CPI and WPI could also be on account of the lower price of commodities in the global market. In WPI, manufactured goods have a weightage of 65% and this includes chemicals, metals and machinery. The price of these products has been down and that could explain why WPI is coming in the negative. On the other hand, food, which is what pinches most for people like you and me, which affects the common man, has a mere 14% weightage while it has 45% weightage in CPI. Thus based on this barometer of the WPI, naturally, an increase in food prices would not get reflected in the WPI. When price of metals, cotton, capital goods have all slipped so low, some even in the negative, little wonder then that WPI shows a deflationary trend!

Thus on one hand, low commodity prices have dragged down the WPI, the CPI is inching up as on the ground, retail price of manufactured goods remain high due to supply bottlenecks. Manufacturers too have not passed on any benefit of their lower costs to the retailer.

But coming back to brass tacks, does this divergence matter to the common man or the scores of house helps and driver, gardeners and the likes across India? Not at all! For them CPI or WPI holds no relevance – for them and us, the only thing that hurts is the high cost of living. No amount of FDI or cutting corporate tax or persistent attempts to appease the stock markets will help – hope the Govt realises this simple truth.