Page 208 - economic_survey_2021-2022

182 Economic Survey 2021-22

5.29 The manufactured sector not only uses crude oil but also several other imported items as
inputs such as iron ore, aluminium, other metals and cotton. The intermediate and inputs items
of WPI, not part of CPI, play a role in its divergence from CPI. The spike in global prices of
various input items which have a high import share, would significantly impact WPI (Box 4),
and not CPI.

5.30 While inflation in CPI subgroup ‘transport and communication’, which includes the petrol
and diesel for vehicle, steadily inched up, WPI’s sub-group ‘fuel and power’, which includes
petrol and diesel, remained very volatile (Figure 18). The contribution of fuel group in WPI
inflation was higher on account of their higher weight in the index as compared to that of
subgroup ‘transport and communication’ in the CPI. (Figure 18)

Figure 18: Diversion between retail and wholesale energy inflation rates

50

40
Inflation Rate (yoy) (per cent) -10 0 Feb-19 Apr-19 Jun-19 Aug-19 Oct-19 Dec-19 Feb-20 Apr-20 Jun-20 Aug-20 Oct-20 Dec-20 Feb-21 Apr-21 Jun-21 Aug-21 Oct-21 Dec-21
30
20
10

-20

-30
CPI_Transport and communication(YoY) WPI_Fuel and Power(YoY)

Source: NSO, MoSPI and OEA, DPIIT

5.31 The decline in wholesale prices of petrol and diesel in 2020 (it excludes taxes and levies),

due to the decline of crude oil demand, created the low base for wholesale inflation during 2021,
while, retail inflation of petrol and diesel was impacted by the higher excise duties that were
levied as revenues from other sources dried up due to disruption of economic activity. With the
revival of economic activity in 2021-22, crude oil prices started inching up. In November 2021,
a reduction in central excise duty was announced for diesel and petrol. While this cut in central
excise duties and subsequent reduction in VAT by majority of the states had a dampening effect
on retail prices of diesel and petrol, wholesale prices continued to reign high resulting in the
widening of the divergence (Figure 19 & 20).