Why using CPI for REER calculation has been self-destructive for India

Given its stage and uncompetitive infrastructure, India's approach has been largely naïve or self-destructive

From production to consumption, there are three major economic decision-making links – consumers, wholesalers/traders and producers. 

Of these, the consumers are driven by satisfaction and operate with a large price band. If he likes a brand, he might pay 20-30% more even when he knows that the products are functionally the same. For most products, superior alternatives are available through imports which might come within his price band. 

The wholesalers are profit driven. They would always try and push products which give them maximum margins – sure, consumer satisfaction counts but will become incidental beyond a point. The manufacturers similarly