Which of the following goods are included to estimate food inflation in India? 1. Wheat 2. Paddy 3. Tobacco 4. Sugar Select the correct answer using the code given below:
- (a)1, 2 and 3
- (b)2, 3 and 4
- (c)1, 3 and 4
- (d)1, 2 and 4
Correct — D, 1, 2 and 4. Wheat, paddy and sugar are all food; tobacco is not, and that single distinction decides the whole item, because every one of the other three options includes tobacco. In the wholesale price index, wheat and paddy sit in the food articles group under primary articles and sugar sits under manufactured food products, and the food index that food inflation is read off is built from both of those together. Raw tobacco is classified with the non-food articles, and in the consumer price index tobacco has a group of its own, pan, tobacco and intoxicants, kept apart from food and beverages.
- (a)1, 2 and 3 — Takes in tobacco and leaves out sugar. Sugar is a manufactured food product and belongs squarely in the food basket; tobacco is excluded from it in both the wholesale and the consumer index.
- (b)2, 3 and 4 — Drops wheat, the most obviously food-grain item on the list, and admits tobacco in its place.
- (c)1, 3 and 4 — Drops paddy while keeping tobacco. Paddy is unmilled rice and is a food article; no compilation of food inflation in India could leave it out.
India tracks prices with two families of index. The wholesale price index measures transactions at the first point of bulk sale and covers goods only. The consumer price index measures what households actually pay and covers services as well. Each has an internal group called food, and food inflation is the rate of change of that group. Which commodity falls inside the food group is not a matter of common sense but of the published classification, and that is what this question tests.
The examiner has built the item so that a single judgement resolves it. Tobacco appears in options (a), (b) and (c) and nowhere else; recognise that tobacco is kept out of the food basket and only (d) survives, without needing to think about wheat, paddy or sugar at all. That habit of finding the one item that separates the options is worth more marks in this paper than the underlying economics. The reason for the exclusion is straightforward — food inflation is watched because it drives the cost of subsistence and feeds into wage demands, and an intoxicant does not belong in that measure. As of the 2020 exam the wholesale index in use had 2011-12 as its base year and the consumer index 2012, and revisions to more recent base years have been under preparation since.
- Food inflation in India is measured off the food group of the wholesale price index and the food and beverages group of the consumer price index.
- In the wholesale index the food group combines food articles from primary articles with food products from manufactured products.
- Sugar is counted as a manufactured food product, so it is inside the food basket even though it is processed.
- Raw tobacco is grouped with non-food articles; in the consumer index, pan, tobacco and intoxicants form a separate group from food and beverages.
- Food carries a much larger weight in the consumer price index than in the wholesale price index, which is why the two headline inflation numbers can diverge sharply.
Tobacco appears in three of the four options and in none of the correct answers, so identifying it settles the question on its own.
- Reading tobacco as an agricultural crop and therefore assuming it counts as food.
- Excluding sugar because it is processed — manufactured food products are still food.
- Treating the wholesale and consumer classifications as identical; they differ in coverage and in weights.
Classification items reward finding the one commodity that splits the options, rather than checking each of the four in turn.
Consider the following statements: 1. The weight of food items is higher in the Consumer Price Index (CPI) than in the Wholesale Price Index (WPI). 2. WPI does not capture changes in the prices of services, whereas CPI does. 3. The Reserve Bank of India has adopted WPI for its primary measure of inflation and for deciding key policy rates. Which of the statements given above is/are correct?
- (a) 1 and 2 only
- (b) 2 only
- (c) 3 only
- (d) 1, 2 and 3
Answer(a) 1 and 2 only
Asked in the same examination year, and it supplies the machinery this question assumes — which index carries food at a heavier weight, and which of the two covers services at all.
India has experienced persistent and high food inflation in the recent past. What could be the reasons? 1. Due to a gradual switchover to the cultivation of commercial crops, the area under the cultivation of food grains has steadily decreased in the last five years by about 30%. 2. As a consequence of increasing incomes, the consumption patterns of the people have undergone a significant change. 3. The food supply chain has structural constraints. Which of the statements given above are correct?
- (a) 1 and 2 only
- (b) 2 and 3 only
- (c) 1 and 3 only
- (d) 1, 2 and 3
Answer(b) 2 and 3 only
Food inflation approached from the causes rather than the basket. It is the natural follow-up once you know which commodities the measure is built from.
- practice — not a real PYQ
Which one of the following is NOT covered by the Wholesale Price Index in India?
- (a)Manufactured food products
- (b)Fuel and power
- (c)Services
- (d)Primary articles
Answer(c) Services — the wholesale index covers goods only, which is one of its main differences from the consumer index.
- practice — not a real PYQ
Core inflation is best described as which one of the following?
- (a)Headline inflation plus food inflation
- (b)Headline inflation excluding food and fuel
- (c)Wholesale inflation excluding manufactured goods
- (d)Inflation measured only for rural households
Answer(b) Headline inflation excluding food and fuel — those two groups are the most volatile, so stripping them shows the underlying trend.