Topic: Indian Economy and issues relating to planning, mobilization, of resources, growth, development and employment.
4. What is Consumer Price Index (CPI)? Do you think that the CPI basket conceals the true picture of inflation? State your opinion. (250 words)
Difficulty level: Tough
Reference: The Hindu
Why the question:
The article suggests that a more accurate representation of inflation should be based on updated and realistic weights that better reflect consumer spending patterns.
Key Demand of the question:
To write about CPI and its limitations.
Structure of the answer:
Introduction:
Begin by defining CPI.
Body:
In the first part of the body, write about CPI – calculates the inflation rate by comparing the price changes of a basket of goods and services over time.
Next, write about the issues in CPI as a measure of inflation – may not accurately reflect the inflation experienced by the average consumer. It highlights that the weights assigned to various items in the basket do not align with the spending patterns of households.
Next, suggest measures to overcome the above.
Conclusion:
Conclude by writing a balanced opinion forward.
