n lation and        siness     le     7.13
     developing economies inflation is unfavourable       is also known as the ‘comfort zone’ of inflation
     for their balance of trade. This is because of       in India since 2015. Similarly for Australia, New
     composition of their foreign trade. The benefit to   Zealand, the USA, Canada and the European
     export which inflation brings in to a developing     Union, the healthy range today is 1 to 3 per cent.
     economy is usually lower than the loss it incur due  This is why every economy today utilises inflation
     to its compulsory imports which become costlier      targeting as part of its monetary policy.
     due to inflation.                                         Inflation beyond the limits of the decided/
                                                          prescribed range brings in recession to depressions.
     13. On Employment                                    (We will see them in Section B of this Chapter,
     Inflation increases employment in the short-run,     ‘Business Cycle.)
     but becomes neutral or even negative in the long
     run (see the Phillips Curve and the NAIRU in the        InflatIon In IndIa
     earlier sections).
                                                          Every economy calculates its inflation for efficient
     14. On Wages                                         financial administration as the multi-dimensional
                                                          effects of inflation make it necessary. India
     Inflation increases the nominal (face) value of      calculates its inflation on two price indices, i.e.,
     wages, while their real value falls. That is why     the wholesale price index (WPI) and the consumer
     there is a negative impact of inflation on the       price index (CPI). While the WPI-inflation is used
     purchasing power and living standard of wage         at the macro-level policymaking, the CPI-inflation
     employees. To neutralise this negative impact the    is used for micro-level analyses. The inflation at
     Indian government provides dearness allowance        the WPI is the inflation of the economy. Both the
     to its employees twice a year.                       indices follow the ‘point-to-point’ method and
                                                          may be shown in points (i.e., digit) as well as in
     15. On the Self-employed
                                                          percentage relative to a particular base year.
     Inflation has a neutralising impact on the self-
     employed people in the short-run. But in the         WholesAle Price inDex
     long-run they also get affected as the economy as    The first index number of wholesale prices
     a whole gets affected.                               commenced in India for the week January 10,
                                                          1942. It was having the base week ending August
     16. On the Economy
                                                          19, 1939 = 100, which was published by the office
     All the segments discussed above belong to an        of the Economic Adviser to the Government of
     economy, but we must know the overall short-         India (Ministry of Industry).40 Independent
     term and long-term impacts of inflation on an        India followed the same series with more number
     economy.                                             of commodities included in the index. Several
           Experiences of the world economies in the      changes regarding inclusion of commodities,
     late 1980s show that a particular level of inflation assigning them the logical weights took place in
     is healthy for an economy. This specific level of    the coming times including revisions in the base
     inflation was called as the ‘range’ of inflation and years for the WPI. The WPI base year has been
     every economy needs to calculate its own range.      revised five times till date. The base years are as
     Inflation beyond both the limits of the range is     given below:
     never healthy for any economy. In the case of India,   40.  Ministry of Finance, Economic Survey 2006–07 (New
     it is considered 2 to 6 per cent at CPI(C), which           Delhi: Government of India, 2007), p. 85.