Syllabus: General Studies Paper 2

What is Governance?

Governance consists of the traditions and institutions by which authority in a country is exercised.  This includes the process by which governments are selected, monitored and replaced; the capacity of the government to effectively formulate and implement sound policies; and the respect of citizens and the state for the institutions that govern economic and social interactions among them.

What are World Governance Indicators?

• Released by the World Bank.
• WGI provide a ranking of 215 countries based on six dimensions of governance:

1. ‘Voice and Accountability’.
2. ‘Political Stability and Absence of Violence’.
3. ‘Government Effectiveness’.
4. ‘Regulatory Quality’.
5. ‘Rule of Law’.
6. ‘Control of Corruption.’

Sources: These aggregate indicators are based on over 30 individual data sources produced by a variety of survey institutes, think tanks, non-governmental organizations (NGOs), international organizations, and private sector firms such as Economist Intelligence Unit (EIU), Varieties of Democracy (V-Dem) Project and Freedom House, etc.

Significance: WGI plays a key role in deciding the sovereign credit rating of any country.

Concern of the Indian government:

• World Governance Indicators (WGI), according to the government, are based on impressions from the Western press or tiny polls of NGOs and a handful of academics, many of whom lack an India specialist.
• There would be a decline in WGI results as a result of these institutes’ critical comments towards India. This could result in India’s sovereign rating being downgraded.

India’s score in the latest WGI:

India’s WGI score is much below the BBB Median on all six indicators.

• While BBB is an investment-grade rating issued by global rating agencies such as S&P and Fitch.
• A WGI score below BBB Median would suggest that India falls below the middle when the scores of countries are arranged in a descending order.

 Major Incidents Which Hugely Affected India’s WGI Rank:

• Kashmir issue.
• Harassment of Activists.
• Sedition laws.
• Cancellation of NGO licences.

Syllabus: General Studies Paper 3

SpaceX recently launched a rocket carrying 53 satellites for the Starlink internet constellation from California Onboard Falcon 9 rocket.

• SpaceX has already launched more than 2,500 Starlink satellites to date but plans to loft many more.

What is the Starlink project?

The Starlink network is one of several ongoing efforts to start beaming data signals from space.

• Under the project, the company intends to evolve into a constellation of nearly 12,000 satellites.
• The aim is to provide low-cost and reliable space-based Internet services to the world.

What are the benefits of LEO satellites based internet?

• LEO satellites are positioned around 500km-2000km from earth, compared to stationary orbit satellites which are approximately 36,000km away.
• As LEO satellites orbit closer to the earth, they are able to provide stronger signals and faster speeds than traditional fixed-satellite systems.
• Because signals travel faster through space than through fibre-optic cables, they also have the potential to rival if not exceed existing ground-based networks.

Challenges:

LEO satellites travel at a speed of 27,000 kph and complete a full circuit of the planet in 90-120 minutes. As a result, individual satellites can only make direct contact with a land transmitter for a short period of time thus requiring massive LEO satellite fleets and consequently, a significant capital investment.

 Criticisms of LEO satellites:

• The balance of power has shifted from countries to companies since most of these are private companies run projects. As a result, there are questions related to who regulates these companies, especially given the myriad of nations that contribute to individual projects.
• Complicated regulatory framework:
• Stakeholders in these companies are from various countries. Thus it becomes challenging to receive requisite licences to operate in each country.
• Satellites can sometimes be seen in the night skies which creates difficulties for astronomers as the satellites reflect sunlight to earth, leaving streaks across images.
• Satellites travelling at a lower orbit can also interrupt the frequency of those orbiting above them.
• Those objects, colloquially referred to as ‘space junk,’ have the potential to damage spacecraft or collide with other satellites.

Potential:

LEO satellite broadband is preferable in areas that cannot be reached by fibre and spectrum services. The target market will therefore be rural populations and military units operating away from urban areas.

Syllabus: General Studies Paper 2

The India Child Protection Forum [ICPF] has opposed the move to raise the marriage age of women.

• ICPF is an umbrella body of child rights organisations launched by Nobel Laureate Kailash Satyarthi.
• It recently appeared before the parliamentary panel studying the Bill on raising the age of marriage for women to 21 from 18 years.

 Why ICPF is against raising the age?

• Because, raising the age of marriage for women to 21 will result in criminalising young adults entering into wedlock, especially those who marry against the consent of their parents.
• It will empower the patriarchal violence against women’s autonomy” when they exercise their choice to marry.

The Prohibition of Child Marriage (Amendment) Bill 2021

It proposes to raise the age of marriage for women to 21 from 18 years,

The Bill would amend:

1. The Indian Christian Marriage Act, 1972.
2. The Parsi Marriage and Divorce Act, 1936.
3. The Muslim Personal Law (Shariat) Application Act, 1937.
4. The Special Marriage Act, 1954.
5. The Hindu Marriage Act, 1955.
6. The Foreign Marriage Act, 1956.

What the law says?

Currently, the law prescribes that the minimum age of marriage is 21 and 18 years for men and women, respectively.

The minimum age of marriage is distinct from the age of majority, which is gender-neutral.

• An individual attains the age of majority at 18 as per the Indian Majority Act, 1875.
• For Hindus, Section 5(iii) the Hindu Marriage Act, 1955 sets 18 years as the minimum age for the bride and 21 years as the minimum age for the groom Child marriages are not illegal but can be declared void at the request of the minor in the marriage.
• In Islam, the marriage of a minor who has attained puberty is considered valid under personal law.
• The Special Marriage Act, 1954 and The Prohibition of Child Marriage Act 2006 also prescribe 18 and 21 years as the minimum age of consent for marriage for women and men respectively.

Syllabus: General Studies Paper 2

Finland and Sweden have formally applied for membership of the North Atlantic Treaty Organization (NATO), the US-led security alliance forged during the Cold War to defend its members from Soviet expansion.

Transforming Europe

• The war in Ukraine has already changed the geopolitics of Europe and the world.
• The admission of Finland and Sweden to NATO would bring about a transformation in the continent’s security map by giving NATO a contiguous long frontier in western Russia. Finland and Russia share a 1,300-km border and doubling it from the present 1,200 km, parts of it in northern Norway, Latvia and Estonia, and Poland and Lithuania.
• In addition, Sweden’s island of Gotland in the middle of the Baltic Sea would give NATO a strategic advantage.
• Furthermore, when Sweden and Finland join NATO, the Baltic Sea — Russia’s gateway to the North Sea and the Atlantic Ocean — would be ringed entirely by members of the western security alliance – Finland, Estonia, Latvia, Lithuania, Poland, Germany, Denmark and Sweden.

Neutrality history

• In seeking NATO membership, Sweden and Finland have abandoned their long history of neutrality, when their foreign policy and security priority was to stay out of superpower rivalry during the Cold War, and maintain cordial ties with both blocs.

Opposition

• At the moment the main obstacle to their applications is Turkey, a member since 1952 and which has NATO’s second largest army after the US.
• Turkey’s president has objected to their applications on the ground that the two countries had provided safe haven to the leaders of the Kurdish group PKK, an armed movement fighting for a separate Kurdistan, comprising Kurdish areas in Turkey, Iraq, Iran and Syria.
• Membership of NATO is open to all European nations that fulfil certain criteria that include “a functioning democratic political system based on a market economy; fair treatment of minority populations; a commitment to resolve conflicts peacefully; an ability and willingness to make a military contribution to NATO operations; and a commitment to democratic civil-military relations and institutions”.
• New members are admitted with the unanimous consent of all members.

What is NATO?

• North Atlantic Treaty Organization (NATO) is a military alliance established by the North Atlantic Treaty (also called the Washington Treaty) of April, 1949, by the United States, Canada, and several Western European nations to provide collective security against the Soviet Union.
• There are currently 30 member states.
• Its original members were Belgium, Canada, Denmark, France, Iceland, Italy, Luxembourg, the Netherlands, Norway, Portugal, the United Kingdom, and the United States.
• Joining the original signatories were Greece and Turkey (1952), West Germany (1955, from 1990 as Germany), Spain (1982), the Czech Republic, Hungary, and Poland (1999), Bulgaria, Estonia, Latvia, Lithuania, Romania, Slovakia, and Slovenia (2004), Albania and Croatia (2009), Montenegro (2017), and North Macedonia (2020).
• Headquarters: Brussels, Belgium.
• Headquarters of Allied Command Operations: Mons, Belgium.

What are the Objectives of NATO?

• NATO’s essential and enduring purpose is to safeguard the freedom and security of all its members by political and military means.
• Political objectives: NATO promotes democratic values and enables members to consult and cooperate on defense and security-related issues to solve problems, build trust and, in the long run, prevent conflict.
• Military Objectives: NATO is committed to the peaceful resolution of disputes. If diplomatic efforts fail, it has the military power to undertake crisis-management operations.
• These are carried out under the collective defence clause of NATO’s founding treaty Article 5 of the Washington Treaty or under a United Nations mandate, alone or in cooperation with other countries and international organisations.
• NATO has only once invoked Article 5, on September 12, 2001 following the 9/11 attacks on the World Trade Center in the US.

How does NATO Function?

• NATO has an integrated military command structure but very few forces or assets are exclusively its own.
• Most forces remain under full national command and control until member countries agree to undertake NATO-related tasks.
• All 30 allies have an equal say, the Alliance’s decisions must be unanimous and consensual, and its members must respect the basic values that underpin the Alliance, namely democracy, individual liberty and the rule of law.
• NATO’s protection does not extend to members’ civil wars or internal coups.
• NATO is funded by its members. The U.S. contributes roughly three-fourths of NATO’s budget.

Syllabus: General Studies Paper 3

Supreme Court says Centre and States have equal powers to make GST-related laws

• It confirms Gujarat HC ruling that government can’t levy IGST on ocean freight imports
• The Supreme Court in a judgment championing the importance of “cooperative federalism” for the well-being of democracy held that Union and State legislatures have “equal, simultaneous and unique powers” to make laws on Goods and Services Tax (GST) and the recommendations of the GST Council are not binding on them.

Reasons

• The recommendations of the GST Council are the product of a collaborative dialogue involving the Union and the States.
• They are recommendatory in nature
• The recommendations only have a persuasive value. To regard them as binding would disrupt fiscal federalism when both the Union and the States are conferred equal power to legislate on GST,”

Background

What is ocean freight?

• Ocean freight is a method of transport by which goods and cargo is transported by ships via shipping lines. Most of the world’s trade is carried out via sea.

Which are the sections of GST laws governing ocean freight?

• The CGST Act requires the importers to pay IGST at 5% on ocean freight under the Reverse Charge Mechanism (RCM).
• Section 5(3) of the IGST Act: This section notifies the supplies which are taxable to GST under the reverse charge mechanism. Under the reverse charge mechanism, a recipient of goods/services is liable to pay GST instead of the supplier.
• Under the notification Integrated Tax (Rate) dated 28th June 2017, the Government has included the term importer under recipient category.

Gujarat High Court judgment explained

Mohit Minerals vs Union of India (UOI)

• The importer was liable to make payment of IGST at 5% under on ocean freight service. Here, both the importer and the supplier are located in non-taxable territory.
• The importer was required to pay IGST on ocean freight which leads to double taxation, and thus, the aggrieved taxpayer filed a writ petition before the Gujarat High Court.

Judgment

• The notification is subordinate to the GST Act.
• Such notifications making the taxpayer liable to IGST under reverse charge are ultra vires to the IGST Act.
• The High Court held that it is unconstitutional as there is no statutory sanction for levy and collection of such tax.

GST Council

• It is a constitutional body under Article 279A.
• It makes recommendations to the Union and State Government on issues related to Goods and Service Tax and was introduced by the Constitution (One Hundred and First Amendment) Act, 2016.
• The GST Council is chaired by the Union Finance Minister and other members are the Union State Minister of Revenue or Finance and Ministers in charge of Finance or Taxation of all the States.
• It is considered as a federal body where both the center and the states get due representation.
• Every decision of the Goods and Services Tax Council shall be taken at a meeting by a majority of not less than three-fourths of the weighted votes of the members present and voting, in accordance with the following principles, namely:
• The vote of the Central Government shall have a weightage of one-third of the total votes cast, and
• The votes of all the State Governments taken together shall have a weightage of two-thirds of the total votes cast, in that meeting.

Syllabus: General Studies Paper 3

The strategically-significant Sela Tunnel project in Arunachal Pradesh is nearing completion.

Located in

• West Kameng district of Arunachal Pradesh
• Will provide an alternate axis to the Sela pass (at 13,700 feet)
• On the BCT Road – the Balipara, Charduar and Tawang axis (more than 300 km long)

Being executed by: Border Roads Organisation

• Includes two tunnels and a link road; Tunnel 2 will be one of the longest tunnels to have been constructed above an altitude of over 13,000 feet.
• The total length of the project, including the tunnels, the approach and the link roads, will be around 12 km.

Why does the project matter?

• All-weather connectivity to Tawang and other forward areas in the sector
• Will provide a new alignment on the axis towards the LAC, and allow movement of military and civil vehicles all through the year (Sela pass stays closed for a few winter months).
• Reduction in more than one hour of travel time from Tezpur to Tawang and travellers avoiding dangerous snow covered Sela top at a height of 13,700 feet.

All weather connectivity to Tawang would be a game-changer for the local population ahead of Sela apart from the much-required strategic edge for our security forces.

Syllabus: General Studies Paper 3

Reaction to the ongoing power shortage crisis, the Ministry of Environment, Forest and Climate Change has eased environmental norms for coal mining.

• Granted some coal mines an exemption from environmental clearance and public consultation for an expansion by a further 10% of their existing capacity. This is a further relaxation of an earlier exemption that granted expansion of up to 40%.
• The move: a special dispensation to counter the coal shortage to meet the ongoing steep rise in power demand.

Coal accounts for nearly 75 per cent of India’s power generation and power plants account for over three-fourths of the over one billion tonnes of annual coal consumption.

Current Situation

India’s electricity demand jumped 15% in April 2022 compared to the same month in 2021.

• A bounce-back in demand – With office spaces, and factories resuming in full force as Covid cases remain low, demand for electricity has spiked.
• The early onset of summer was exacerbated by record-breaking heatwaves across northern India
• Russia’s war in Ukraine disrupted trade flows and crippled supply amid additional demand from Europe.
• Record high prices of imported coal: Plants designed to operate on imported low-ash coal are suffering due to the record high prices of imported coal.
• Extremely low utilization of a total of 17GW of such plants has been another obstacle to meeting the high demand.
• The shortage of trains to transport coal is exacerbating a fuel supply crisis.
• Railways face the challenge of hauling coal from mines to plants across the country over distances up to 1,500 km.
• Continues to face the pressure of managing passenger freights versus coal freights, both of which run on the same lines.
• Lack of coordination between the Ministries – Coal, Railways and Power
• Delayed payments and mounting debts in the power sector

The supply-demand mismatch has caused brownouts all across India. The current crisis has more to do with the shortage of coal stockpiles at coal-based power plants and coal transportation logistics than volumes of coal mined.

Power cuts are not the only concern at the moment.

• The rising mercury could lead to serious health complications, deaths, water shortage and more.
• Put blue-collar workers — including rickshaw drivers, street vendors, construction workers, delivery people — at greater risk since they are usually working out in the sun.
• Also leads to increased fire incidents in jungles, important buildings and hospitals

India’s Coal Production

• India’s domestic coal production grew by 8.5% to 777 million tonnes (mt) in FY22 from 716 mt in FY21.
• Coal production in April 2022 was 29% higher compared to the same month last year
• But the coal dispatch volumes only increased by 9%. Even then, plants have failed to maintain the necessary coal stockpiles.

Is it the correct move?

• Exempting coal-mine expansions from proper environmental and social impact assessment is not a long-term solution for power-supply security.
• Could have severe social and economic impacts on indigenous communities living near the coal mines as well as the flora and fauna surrounding the mines.

The Way Forward

The current crisis presents an opportunity to accelerate the commissioning of clean energy capacity.

• Policies to increase the uptake of distributed and rooftop solar PV, which could be built faster without putting pressure on transmission networks, will provide better outcomes.
• Small and medium industries (SMEs), educational institutes, banks, hospitals and residential communities will benefit from reducing their dependence on the grid and by producing their own electricity and selling some back to the grid.
• There is a strong case for the government to give a further push to distributed solar to protect India’s economic activities from frequent power outages.
• Ramping up of production capacity
• Hospitals across country should set up hospitals to set up special wards for heat stroke and other heat-related diseases.

Syllabus: General Studies Paper 3

RBI has issued regulations to bridge the regulatory gaps between commercial banks and NBFCs/cooperatives.

Shadow Banks

• Traditionally, regulators have adopted a strict regulatory approach for commercial banks, but followed a light touch regulation for NBFCs. This is because banks receive deposits from general public whereas NBFCs draw their funds mainly from financial institutions primarily banks.
• As banks are much better-informed than the public, there is a belief that NBFCs need not be regulated as strictly as banks. Light regulation helps them innovate.
• The belief of different regulatory structures was turned on its head in the wake of the 2008 crisis. The losses spread to the banking system as NBFCs are connected to the overall system via a complex maze of interlinkages. The global financial system was also connected to the US financial system bringing the entire global financial system and global economy to a halt.

The global financial crisis earned a new name for the NBFCs—shadow banks

• Called so as they worked like banks but without being regulated as strictly, thus under the shadow.
• The crisis also led to lot of discussion around shadow-banking, and what could be done to bridge the regulatory gaps between banks and non-banks.
• In 2017, the Financial Stability Board, an international body that monitors and makes recommendations on the global financial system, recommended changing the name from shadow banks to non-bank financial entities.

NBFC situation in India

India faced a crisis in 2018.

• The failure of the IL&FS group put other NBFCs under the spotlight.
• The other NBFCs struggled to get funds from banks, their major source of finance. RBI does not provide direct funds to NBFCs, and thus opened a special window via banks for supporting NBFCs. Even before 2018, there has been a long history of NBFC failure and RBI efforts to regulate them.
• Post-Independence, RBI did not pay much attention to NBFCs as their share in overall financial activity was negligible. As a result, the Banking Regulation Act (1949), did not have any clause for regulating NBFCs. RBI’s thinking began to change in 1960s with failures and frauds in certain NBFCs.
• There have been multiple committees to study the NBFC sector. The committees have suggested reforms which have been mainly around strengthening capital base of the NBFCs, higher prudential norms, and so on. RBI has acted on the suggestions, but gaps have remained given the nature of the NBFC sector, due to the multiple types of NBFCs that have mushroomed over the years and are regulated by multiple type of regulators.

Regulations passed in 2021 by RBI

• Classified all its regulated NBFCs into four layers, based on size: base layer, middle layer, upper layer and top layer. This scale-based regulation allows RBI to initiate regulations based on size rather than type of NBFCs (the case earlier).
• Passed multiple regulations attempting to strengthen regulatory and compliance requirements at Middle (NBFC-ML) and Upper Layers (NBFC-UL) of NBFCs.

• Asked NBFC-UL to maintain capital equity ratio at 9%, similar to that for banks.
• Applied the large exposure framework on NBFC-UL, which minimises loans to one or more interconnected counterparties.
• Issued guidelines restricting granting loans and advances to directors and their relatives. It has also advised NBFCs to follow loan appraisal policies carefully while lending to the real estate sector.
• The central bank has come up with legal entity identifiers (LEIs), where codes are given to individual borrowers of a certain large amount. The LEIs were first applied to commercial banks and have been now extended to NBFC-UL and cooperatives.
• RBI has asked the NBFCs to appoint a chief compliance officer, similar to that of commercial banks.

Conclusion

The above reforms are welcome as they bring NBFC regulation closer to that of commercial banks. RBI has also applied these regulations at middle and upper layers NBFCs, leaving the base layer to continue evolving and innovating.

Syllabus: General Studies Paper 2

The Union Cabinet has approved amendments to the National Policy on Biofuels 2018.

As per the amendments:

The deadline for fuel firms to raise the ratio of ethanol in gasoline to 20% will be 2025.

From April 1, 2023, the policy of introducing 20% ethanol will take effect.

Benefits of 20% ethanol blending (According to NITI Aayog report):

• Saving ₹30,000 crore of foreign exchange per year.
• Increased energy security.
• Lowered carbon emissions.
• Better air quality.
• Self-reliance.
• Better use of damaged foodgrains.
• Increased farmers’ incomes and greater investment opportunities.

Ethanol blending -. India’s journey so far:

As of March 13, 2022, India had attained a 9.45 percent ethanol blend. By the conclusion of the fiscal year 2022, this is expected to touch 10%.

Challenges:

• A 10% blend does not necessitate major engine changes, but a 20% blend may necessitate certain changes and may even raise vehicle prices.
• More blending might imply more land being diverted for water-intensive crops like sugarcane, which the government presently subsidises.
• An ethanol demand of 10.16 billion litres by 2025: This will require six million tonnes of sugar and 16.5 million tonnes of grains per annum by 2025.
• The increased allocation of land also puts into question the actual reduction in emissions that blending ethanol with petrol brings about.

What is ethanol?

• It is the organic compound Ethyl Alcohol which is produced from biomass. It is also an ingredient in alcoholic beverages.
• It has a higher octane number than gasoline, hence improves the petrol octane number.
• Since ethanol contains oxygen, it is supposed to help in complete combustion of fuel, resulting in lower emissions.

Syllabus: General Studies Paper 3

Since the start of the inflation-targeting regime of RBI, most of the focus has been on consumer price inflation. That’s because that is the inflation rate that RBI seeks to target and keep at the 4% mark. But over the past year, the inflation in wholesale prices has been surging in a rather unprecedented manner.

• Since April last year, WPI (wholesale price index) based inflation has been above 10% in every single month.
• In April 2022, WPI inflation crossed another psychological mark: it went beyond 15%.

With such high levels of headline inflation, it is clear that most components of WPI are witnessing high inflation.

What’s fuelling WPI inflation?

• While the highest inflation has been in fuel prices, it is the smallest contributor to the overall index.
• While manufactured product inflation is the least, it is likely to have had almost six times the impact on the overall inflation because of the weight.
• The heatwave led to a spike in prices of perishables such as fruits, vegetables and milk, which along with a spike in tea prices pushed up the primary food inflation.
• Much of the inflation spike is being seen as a result of the Russia-Ukraine conflict, with the contribution in retail inflation being seen at three-fourths of the index.

What next?

An increase in WPI-food inflation leads to higher food prices for consumers as well. With WPI inflation remaining in double-digits, the probability of a repo hike in the June monetary policy has risen further.

• One can expect retail food prices to possibly increase further simply on account of higher food inflation in the wholesale market.
• Higher retail prices of food tend to spike wholesale food prices in turn. In other words, one can get into a vicious cycle if inflation is left unaddressed.
• Imported inflation in the form of high energy and commodity prices is a fact of life, and it will continue to force RBI to take action. High WPI inflation will further convince RBI to raise interest rates and do so urgently.

Tough Act for RBI:

• The flip-side of raising interest rates sharply, however, is that they will dampen the overall demand in the Indian economy at a time when overall consumer demand is still fledgling.
• The RBI, thus, has a tough balancing act to perform: contain inflation (especially from sources over which it has no control, such as high fuel prices) while ensuring not snuffing out domestic economic recovery.

Some of the likely impacts of inflation:

• Reduces people’s purchasing power: Restrict people’s ability to purchase things, but coupled with reduced incomes and job losses, households would struggle even more. 
• Reduces overall demand: The eventual fallout of reduced purchasing power is that consumers demand fewer goods and services.
• Harms savers and helps borrowers: High inflation eats away the real interest earned from keeping one’s money in the bank or similar savings instruments. Earning a 6% nominal interest from a savings deposit effectively means earning no interest if inflation is at 6%. 
• Helps the government meet debt obligations: In the short term, the government, which is the single largest borrower in the economy, benefits from high inflation. Inflation also allows the government to meet its fiscal deficit targets. Fiscal deficit limits are is expressed as a percentage of the nominal GDP. 
• Mixed results for corporate profitability. In the short term, corporates, especially the large and dominant ones, could enjoy higher profitability because they might be in a position to pass on the prices to consumers. But for many companies, especially smaller ones, persistently higher inflation will reduce sales and profitability because of lower demand.
• Worsens the exchange rate: High inflation means the rupee is losing its power and, if the RBI doesn’t raise interest rates fast enough, investors will increasingly stay away because of reduced returns.
• Leads to expectations of higher inflation: Persistently high inflation changes the psychology of people. People expect future prices to be higher and demand higher wages. But this, in turn, creates its own spiral of inflation as companies try to price goods and services even higher.

Consumer Price Index

• A measure that examines the weighted average of prices of a basket of consumer goods and services, such as transportation, food and medical care.

• FOOD ITEMS, which account for 46% of the index;
• FUEL & LIGHT, with a weight of 7%;
• CORE, all other items, which make up the remaining 47%.

• It is calculated by taking price changes for each item in the predetermined basket of goods and averaging them.
• Changes in the CPI are used to assess price changes associated with the cost of living;
• The CPI is one of the most frequently used statistics for identifying periods of inflation or deflation.
• Headline inflation is calculated using the Consumer Price Index.

In the current financial year, it is estimated that all three components will experience an inflation rate of 6% or more.

Wholesale Price Index (WPI)

• WPI measures the changes in the prices of goods sold and traded in bulk by wholesale businesses to other businesses. In other words, WPI tracks prices at the factory gate before the retail level.
• The numbers are released by the Ministry of Commerce and Industry
• Even as the WPI is used as a key measure of inflation in some economies, the RBI no longer uses it for policy purposes, including setting repo rates.

Difference between WPI & CPI?

• WPI, tracks inflation at the producer level and CPI captures changes in prices levels at the consumer level.
• Both baskets measure inflationary trends (the movement of price signals) within the broader economy, the two indices differ in which weightages are assigned to food, fuel and manufactured items.

• WPI does not capture changes in the prices of services, which CPI does.

Headline Retail Inflation vs Core Inflation

• Headline inflation is the raw inflation figure reported through the Consumer Price Index (CPI) that is released by CSO. The headline figure is not adjusted for seasonality or for the often-volatile elements
• Core inflation removes the CPI components that can exhibit large amounts of volatility from month to month, which can cause unwanted distortion to the headline figure. The most commonly removed factors are those relating to the cost of food and energy.