Page 555 - ES 2020-21_Volume-1-2 [28-01-21]

182 Economic Survey 2020-21 Volume 2

IIP growth and CPI inflation during the same period is 0.2. Similarly, we can see high correlation
of CPI Core inflation and WPI inflation with other metrics of production and demand in the
Indian economy (Table 5).

Table 5: Correlation of production/demand metrics with CPI-C,
Core and WPI Inflation in 2020-21 #

CPI-C Inflation CPI-C Non-food WPI Inflation
non-fuel (core)

Growth in tractor production* – 0.34 0.87 0.68

Growth in vehicle registration* – 0.27 0.78 0.89

Overall Growth of Eight Core Industries 0.20 0.90 0.75

Growth of Coal 0.65 0.62 0.86

Growth of Crude Oil 0.11 0.57 0.56

Growth of Natural Gas 0.19 0.97 0.77

Growth of Petroleum Refinery Products – 0.06 0.61 0.51

Growth of Fertilizers – 0.43 0.42 – 0.10

Growth of Steel 0.14 0.89 0.71

Growth of Cement – 0.08 0.79 0.45

Growth of Electricity 0.48 0.91 0.85

IIP growth 0.23 0.92 0.77

Note: # April-November, 2020
* April-December, 2020
Source: Tractor and Mechanization Association, VAHAN Dashboard, Office of Economic Adviser, DPIIT and NSO

5.28 A tight monetary policy may have a role in managing inflation in case of excess demand
driving high inflation. However, the current scenario presents a different picture. The current

spike in CPI inflation driven by spike in food prices is mainly a supply-side phenomenon. This
can be easily assessed from the fact that arrivals in the market, for agricultural commodities
like onion, tomato and potato that have witnessed spikes in recent times, have been much

lower compared to the previous years (Figure 20). Further, the weights of all items in CPI-C
are based on NSO Household Consumption Expenditure Survey 2011-12. Weight of food

items in the index might have significantly decreased over the decade since 2011-12. There
is a need to capture the revised weight of food items in the index to correctly depict the true