Testing empirically the impact of inflating diesel prices in WPI and CCI

Abstract

Diesel is a price determinant among various other commodities, because it is being used extensively in the construction projects, and rise or fall in its price will directly have an impact on the price of various commodities and overall cost of a construction project. In the Indian construction industry, in most of the contracts barring few, the variation in the project cost due to inflating diesel price is being calculated using WPI. CIDC has taken an initiative to develop construction-specific cost indices (CCI) but it is not being commonly used by the industry. Empirically, it has been observed that the cost of escalation, in the price of diesel, obtained from the present method is too low then the actual cost escalation incurred in the construction projects. For this reason, the focus of this study is on WPI and CCI with un-predictable inflation in the price of Diesel in India.