Group Members

Name Roll No

1) Alok Yadav 44

2) Brijesh Brijesh Vishwakarma 42

3) Praveen Singh 35

4) Rohit Kadam 14

5) Sachchidanand Tripathi 39
Table of contents

Acknowledgement

Introduction

Inflation

Delphi method

Experts

Questionnaire

Findings

Appendix
 ACKNOWLEDGEMENT

We thank the people who has helped us and supported us during this project.

We would like to thank our professor Dr. Sharad Varde for giving such a wonderful project
which made us understand inflation and its impact.

We thank Mr. Rajesh of Economic and Political Weekly Research Foundation for providing
us the data
We thank our experts Dr. Abhay Pethe, Neeraj Hatekar, Mr. Rajeev Surana and Mr.
Krishna swamy for giving us time and sharing their opinion.
 INTRODUCTION

What is inflation?

Inflation rate of a country is the rate at which prices of goods and services increase in its
economy. It is an indication of the rise in the general level of prices over time. Since it’s
practically impossible to find out the average change in prices of all the goods and services
traded in an economy (which would give comprehensive inflation rate) due to the sheer number
of goods and services present, a sample set or a basket of goods and services is used to get an
indicative figure of the change in prices, which we call the inflation rate.
Mathematically, inflation or inflation rate is calculated as the percentage rate of change of a
certain price index. The price indices widely used for this are Consumer Price Index (adopted by
countries such as USA, UK, Japan and China) and Wholesale Price Index (adopted by countries
such as India). Thus inflation rate, generally, is derived from CPI or WPI. Both methods have
advantages and disadvantages. Since India uses WPI method for inflation calculation, let’s go in
to the details of WPI based inflation calculation.

How does India calculate inflation?

In India, inflation is calculated on a weekly basis. India uses the Wholesale Price Index (WPI) to
calculate and then decide the inflation rate in the economy.

WPI was first published in 1902, and was one of the more economic indicators available to
policy makers until it was replaced by most developed countries by the Consumer Price Index in
the 1970s.

WPI is the index that is used to measure the change in the average price level of goods traded in
wholesale market. In India, a total of 435 commodities data on price level is tracked through
WPI which is an indicator of movement in prices of commodities in all trade and transactions. It
is also the price index which is available on a weekly basis with the shortest possible time lag
only two weeks. The Indian government has taken WPI as an indicator of the rate of inflation in
the economy.
In this method, a set of 435 commodities and their price changes are used for the calculation. The
selected commodities are supposed to represent various strata of the economy and are supposed
to give a comprehensive WPI value for the economy.

WPI is calculated on a base year and WPI for the base year is assumed to be 100. To show the
calculation, let’s assume the base year to be 1970. The data of wholesale prices of all the 435
commodities in the base year and the time for which WPI is to be calculated is gathered.

Let's calculate WPI for the year 1980 for a particular commodity, say wheat. Assume that the
price of a kilogram of wheat in 1970 = Rs 5.75 and in 1980 = Rs 6.10

The WPI of wheat for the year 1980 is,

(Price of Wheat in 1980 – Price of Wheat in 1970)/ Price of Wheat in 1970 x 100

i.e. (6.10 – 5.75)/5.75 x 100 = 6.09

Since WPI for the base year is assumed as 100, WPI for 1980 will become 100 + 6.09 = 106.09.

In this way individual WPI values for the remaining 434 commodities are calculated and then the
weighted average of individual WPI figures are found out to arrive at the overall Wholesale Price
Index. Commodities are given weight-age depending upon its influence in the economy.

How is inflation rate calculated?

If we have the WPI values of two time zones, say, beginning and end of year, the inflation rate
for the year will be,
(WPI of end of year – WPI of beginning of year)/WPI of beginning of year x 100
For example, WPI on Jan 1st 1980 is 106.09 and WPI of Jan 1st 1981 is 109.72 then inflation
rate for the year 1981 is,

(109.72 – 106.09)/106.09 x 100 = 3.42% and we say the inflation rate for the year 1981 is
3.42%.
Since WPI figures are available every week, inflation for a particular week (which usually means
inflation for a period of one year ended on the given week) is calculated based on the above
method using WPI of the given week and WPI of the week one year before. This is how we get
weekly inflation rates in India.

Characteristics of WPI

Following are the few characteristics of Wholesale Price Index:

 WPI uses a sample set of 435 commodities for inflation calculation

 The price from wholesale market is taken for the calculation
 WPI is available for every week
 It has a time lag of two weeks, which means WPI of the week two weeks back will be
available now

Commodities and their weightages in WPI calculation of India,

India uses a basket of 435 commodities and a base year of 1993-94 for its Wholesale Price Index
(WPI) based inflation rate calculation. The 435 commodities used for finding WPI range from
food items like rice, wheat to petroleum products to medicines and are given weightages
depending upon their importance and impact on the economy. Discussions are going on to revise
the number of commodities to 980 and base year to 2004-05.

The 435 commodities are divided to various groups and subgroups. Individual commodities, and
as a result, groups and subgroups have weightages. On a broader level, the 435 commodities are
grouped into,

1. Primary Articles
2. Fuel, Power, Light & Lubricants
3. Manufactured Products

Primary Articles consist of food grains, fruits and vegetables, milk, eggs, meats and fishes, condiments
and spices, fibers, oil seeds and minerals. Fuel, Power, Light & Lubricants consist of coal and petroleum
related products, lubricants, electricity etc. Manufactured Products consist of dairy products, atta, biscuits,
edible oils, liquors, cloth, toothpaste, batteries, automobiles etc. The group weightages are 22.02525%,
14.22624% and 63.74851% for Primary Articles, Fuel, Power, Light & Lubricants and Manufactured
Products respectively. The total adds up to 100.

There are three more parts to this article. In the first part, we will cover Primary Articles, its sub
classifications, individual commodities and their weightages. Second part is for Fuel, Power, Light &
Lubricants, its sub classifications, individual commodities and their weightages and third part deals with
Manufactured Products, its sub classifications, individual commodities and their weightages.

Primary Articles:

Primary Articles, which has a group weightage of 22.02525%. Primary Articles are further
classified in various sub-groups and sub-sub-groups as shown below.

a. Food Articles
1. Food Grains (Cereals & Pulses)
i. Cereals
ii. Pulses
2. Fruits & Vegetables
i. Vegetables
ii. Fruits
3. Milk
4. Eggs, Meat & Fishes
5. Condiments & Spices
6. Other Food Articles
b. Non-Food Articles
1. Fibers
2. Oil Seeds
3. Other Non-Food Articles
c. Minerals
1. Metallic Minerals
2. Other Minerals
Fuel, Power, Light & Lubricants:

Fuel, Power, Light & Lubricants, which has a group weightage of 14.22624%. Fuel, Power,
Light & Lubricants are further classified into various sub-groups as shown below.

1. Coal Mining
2. Mineral Oils
3. Electricity

Following table shows the sub-groups and individual commodity weightages of the constituents of Fuel,
Power, Light & Lubricants.
New series of WPI from Sep 14, 2010.

Government will launch a new series of wholesale price index (WPI) with 2004-05 as base year.
Earlier 1993-94 was used as base year to calculate WPI. The new series of WPI has 676 items as
against 435 items in the previous series. Consumer items widely used by the middle class like
ice-cream, mineral water, flowers, microwave oven, washing machine, gold and silver are
reflected in the new series of WPI.

Under primary article group of the new WPI, there are 102 items against existing 98, while fuel
and power category are static at 19. In the new series, there are 555 items of manufactured
products compared to 318 items at present.

At the same time, weight of manufactured products has gone up to 64.97% compared to 63.75%,
while that of primary articles group, including food, has come down to 20.12%, against 22.02%.
The new series accompany inflation numbers with old base year (1993-94) as well for
comparison.

Reference:

New series of WPI from today - The Times of India

http://timesofindia.indiatimes.com/business/india-business/New-series-of-WPI-from-
today/articleshow/6549990.cms#ixzz0ysBZRAAs
 Delphi Forecasting

1. Introduction

Delphi forecasting is a non-quantitative technique for forecasting. It draws its name from the
Oracles of Delphi, which in Greek Antiquity advised people based on intuition and common
sense. Unlike many other methods that use so-called objective predictions involving quantitative
analysis, the Delphi method is based on expert opinions. It has been demonstrated that
predictions obtained this way can be at least as accurate as other procedures. The essence of the
procedure is to use the assessment of opinions and predictions by a number of experts over a
number of rounds in carefully managed sequences.

One of the most important factors in Delphi forecasting is the selection of experts. The persons
invited to participate must be knowledgeable about the issue, and represent a variety of
backgrounds. The number must not be too small to make the assessment too narrowly based, nor
too large to be difficult to coordinate. It is widely considered that 10 to 15 experts can provide a
good base for the forecast.

2. Where does it come from?

It has its origins in the Cold War in the 1950s when the Rand Corporation, funded by the US Air
Force, was trying to find a way to establish reliable consensus of opinion among a group of
experts about how Soviet military planners might target the US industrial system in an attack and
how many atomic bombs would be needed to have a specified level of impact on US military
capability. This was the original ‘Project Delphi’.

3. Procedure

The procedure begins with the planner/researcher preparing a questionnaire about the issue at
hand, its character, causes and future shape. These are distributed to the respondents separately
who are asked to rate and respond. The results are then tabulated and the issues raised are
identified.
The results are then returned to the experts in a second round. They are asked to rank or assess
the factors, and justify why they made they their choices. During a third or subsequent rounds
their ratings along with the group averages, and lists of comments are provided, and the experts
are asked to re-evaluate the factors. The rounds would continue until an agreed level of
consensus is reached. The literature suggests that by the third round a sufficient consensus is
usually obtained.

The procedure may take place in many ways. The first step is usually undertaken by mail. After
the initial results are obtained the subsequent round could be undertaken at a meeting of experts,
assuming it would be possible to bring them together physically. Or, the subsequent rounds could
be conducted again by mail. E-Mail has greatly facilitated the procedure. The basic steps are as
follows:

1. Identification of the problem. Researcher identifies the problem for which some
predictions are required, e.g. what is the traffic of port x likely to be in 10 years time.
Researcher prepares documentation regarding past and present traffic activity.
Questionnaire is formulated concerning future traffic estimates and factors that might
influence such developments. A level of agreement between the responses is selected, i.e.
if 80% of the experts can agree on a particular traffic prediction.
2. Selection of experts. In the case of a port scenario this might include terminal managers,
shipping line representatives, land transport company representatives, intermediaries such
as freight forwarders, and academics. It is important to have a balance, so that no one
group is overly represented.
3. Administration of questionnaire. Experts are provided with background documentation
and questionnaire. Responses are submitted to researcher within a narrow time frame.
4. Researcher summarizes responses. Actual traffic predictions are tabulated and means
and standard deviations calculated for each category of cargo as in the case of a port
traffic prediction exercise. Key factors suggested by experts are compiled and listed.
5. Feedback. The tabulations are returned to the experts, either by mail or in a meeting
convened to discuss first round results. The advantage of a meeting is that participants
can confront each other to debate areas of disagreement over actual traffic predictions or
of key factors identified. The drawback is that a few individuals might exert personal
 influence over the discussion and thereby sway outcomes, a trend that the researcher must
be alert to and seek to mitigate. Experts are invited to review their original estimates and
choices of key factors in light of the results presented, and submit a new round of
predictions.
6. These new predictions are tabulated and returned to the experts either by mail or
immediately to the meeting, if the level of agreement does not meet the pre-determined
level of acceptance. The specific areas of disagreement are highlighted, and the experts
are again requested to consider their predictions in light of the panel’s overall views.
7. The process is continued until the level of agreement has reached the pre-determined
value. If agreement is not possible after several rounds, the researcher must terminate the
process and try to pinpoint where the disagreements occur, and utilize the results to
indicate specific problems in the traffic prediction process in this case. This method could
be applied in a classroom setting, with students serving as ‘experts’ for a particular case
study. The traffic at the local airport or port might be an appropriate example. On the
basis of careful examination of traffic trends and factors influencing business activity, the
class could be consulted to come up with predictions that could then be compared with
those of some alternate method such as trend extrapolation.
Summary of the methodological features of Delphi in experimental studies:
Study

Delphi group size 4

Rounds 2

Nature of subjects Professionals: economists,

management consultant,

Nature of Delphi feedback Individual estimate; inflation

Task Hypothetical even: when will the

inflation in India come at 3%

Incentives No
Offerd?

India's inflation highest among developing nations

http://www.thehindubusinessline.com/2010/07/09/stories/2010070954800100.htm
 EXPERTS:

For forecasting when will the inflation settle at at 3%

we have selected the following experts:

EXPERT 1

1) Name: Dr. Abhay Pethe

2) Designation:

a) Director & Professor, Dr. Vibhooti Shukla

Chair Unit in Urban Economics and Regional Development.

b) Director of the Department of Economics, Mumbai University

Why have we selected him as expert?

1) He is an economist and having the teaching experience of more than 15 years and

2) He has published 45 papers in national and international magazines.

3) He has published 2 books and one of them on inflation:

Macromodelling, Optimal Control And Inflation (An Eclectic Study), Himalaya Publishing Co.,
Bombay 1994.

4) He had successfully guided three M.Phil and eighteen Ph.D.students

5)He has as a consultant for various private sector, semi-government and national and
international development organizations. These include, Government of Maharashtra,
UNDP/UNCHS, World Bank.
EXPERT 2

2) Name Neeraj Hatekar

Designation Professor of Econometrics

Areas of Interest: Economic History of India,

Applied Econometrics.

Papers taught over the years at the Master.s level:

Microeconomics, Macroeconomics,

Econometrics, Mathematical Economics, Economics of Growth, Development and Planning,

Financial Economics, Economic Development in Historical Perspective.

Why have we selected him as expert?

1) His area of interest is econometrics

1) He is an economist and having the teaching experience of more than 10 years and

2) He has published 37 papers in national and international magazines.

EXPERT 3

NAME: Mr Rajeev Surana

DESIGNATION: Managing Partner at 2S Consulting

Mumbai, India

Why have we selected him as expert?

1) He is the founder of 2S Consulting with engagements across an array of industry sectors in

business planning, performance management and decision support.

1) He has over 5 years of experience with Deloitte Consulting in USA and UK leading
engagements across an array of industry sectors in business planning, performance management
and decision support.

He also worked on the design of industry-specific business process prints at Deloitte. He has
helped several fast-growth Indian companies to move from task-orientation to process and
performance focus. He has served as a subject matter expert and has presented at various
conferences and academic forums. Rajeev is a B Tech from IIT Bombay.
EXPERT 4:

Economic and Political Weekly Research Foundation.

Mr. Krishna swamy.

The EPW Research Foundation (EPWRF conducts research on financial and macro-economic
issues in India.

Why we selected this organization:

EPWRF has built up expertise in important areas of economic research and analysis. The
Foundation has been focusing on a systematic compilation and dissemination of current and
long-term data series on the macro-economy, as also various economic, social and demographic
sectors. While disseminating these data series, the EPWRF has not only been describing the
underlying concepts and methods and procedures of data compilation, it has also been making
critical observations on their quality and possible weaknesses. Besides, all data base studies
published by the EPWRF have provided reviews of the trends in growth and structural changes
of the Indian economy as revealed in the respective macro-economic and sectoral data.
Which data we selected for the experts and why?

In India, inflation is calculated on a weekly basis. India uses the Wholesale Price Index (WPI) to
calculate and then decide the inflation rate in the economy.
India uses a basket of 435 commodities and a base year of 1993-94 for its Wholesale Price Index
(WPI) based inflation rate calculation.

The 435 commodities are divided to various groups and subgroups. Individual commodities, and
as a result, groups and subgroups have weightages.

So we gave them the data of 435 commodities over the last 6 months and the data of the WPI
index of the three groups over the last 10 years.
 QUESTIONNAIRE
WHEN WILL THE INFLATION SETTLE AT 3%

Thank you for taking the time to fill in this questionnaire

Name:

Job title:

Company:

E-mail:

1. What is inflation?

2. What are the factors on which inflation in India depends?

a) Capital inflow

b) Tax – GDP ratio

c) Supply And Demand

d) Other factors

3. How is inflation measured in India?

a) Consumer Price Index

b) Wholesale Price Index

c) GDP deflator

d) Other factors
4. What is the current inflation rate in India?

A) 11.25%

b) 10.16%

c) 8.51%

d) Other

5. Do you think inflation can settle at 3%?

A) Yes

B) No

c) Can’t say

6. If yes, how can the inflation rate be brought at 3%?

7. On what is your forecast based on?

A) Short term data analysis

B) Long term data analysis

C) Any other

8. If the inflation falls too low (3%), then something bad might happen?

A) Yes very much

B) Yes some what

C) No or no opinion
9. If you answered yes, what are you worried might happen?

10. What should be the ideal inflation rate in India?

11. Do you think we should start using CPI in place of WPI? Why?

12. Do you think the weightage to manufactured goods be increased?

A) Yes

b) No

c) Can’t say

13. By increasing the no of commodities what will be the effect on WPI?

 Findings

Expert’s opinion:

Inflation depends on: supply of pricing of goods, Hoarding for food price led inflation, monetary
policy.

Inflation can be brought down to 3% by particularly reducing fiscal deficit and by monetary
policy(increasing interest rates, slowing the rise in the money supply), but it is not desirable to
bring it down to less than 4-5% since it will affect the growth rate adversely.

The dramatic decrease in inflation will have both economic and political implications for the
government.

The primary articles which has the weightage of 22.02525% contains perishable food items like
Milk, Eggs, Meat & Fishes to bring the food price index down you need to have good supply
chain and storage facility.

Inflation is about good governance (when you say food grains are rotting at one end and the
prices are rising at other end, its contradictory.)

Our analysis:

The inflation can settle down at 3% if the RBI reduces fiscal deficit and brings the change in the
monetary policy but that would slow the growth rate, India being a developing country cannot
decrease its growth rate. So a balance has to be maintained, the inflation at of 5-5.5 % would be
balance for people and for the growth of country.

It the inflation settles at 3% the money supply will decrease.so the business will be affected and
the unemployment would be increased. That would again be a problem.

Note: Due to the time limit for project of 2 weeks we could not do further analysis.
APPENDIX