The country will have a Producer Price Index (PPI) to gauge the price pressures in the next few months, in addition to the extant consumer price index, and wholesale price index (WPI) may be on its way out.

The model for the proposed PPI has been finalised, and it would be examined by the National Statistical Commission (NSC) before it is placed before higher authorities for approval, a senior official said Thursday.

“Consultations with the Ministry of Statistics and Programme Implementation (MoSPI) have been done. It has to go through a process.. we are on the job,” secretary in the department for promotion of industry and internal trade (DPIIT) Rajesh Kumar Singh said.

“The model from our side is final and we have shown it to the International Monetary Fund (IMF). The procedural clearances required will be worked on. That process is on but cannot give the timeline,” he added.

The PPI has been discussed for the past 20 years when its idea was first mooted. While the need to move to PPI from WPI was expressed in 2003 it was only in 2014 that a working group was set up to determine the methodology and data requirements to move ahead. The report of the group came in 2017 but no decision was taken on it.

In 2019 the government had constituted a working group for revision of the current series of WPI that has 2011-12 as its base year. The task before the group was to suggest a new base year for WPI and suggest additions and deletions of commodities in the basket of goods whose prices are tracked to draw the index. The working group was also empowered to recommend a road map for moving to the Producer Price Index (PPI) from WPI.

“That (revision of WPI base year) is also one of the issues that the government is considering. I suppose you can expect some sort of an update of the base year eventually, but whether there will be one particular base year or different…because our studies show that other countries have multiple base years for different types of indices,” Singh said.

On whether the WPI will be discontinued after the PPI is rolled out, the secretary said, “There will be a transitional phase where both will be there. It (WPI) should go but a call will have to be taken.”

The CPI is the yardstick relied on by the Reserve Bank of India and the Monetary Policy Committee (MPC) under the inflation targetting framework. However, the WPI has a larger de facto weight in the GDP deflator than CPI, which explains the unusually narrow gap between the nominal and real GDP growth rates seen in recent quarters.

India is one of the few countries that still uses WPI. All members of the G-20, including China,have PPI. PPI globally tracks price movements in both goods and services.

PPI is different from WPI in the way that it measures the average change in prices received by producers and excludes indirect taxes. WPI captures the price changes at the point of bulk transactions and may include some taxes and transportation costs. PPI also removes multiple counting bias inherent in WPI. The shedding of additional costs on products imposed by taxes and transportation makes it a more accurate gauge of price movements.

Weight of an item in WPI is based on net traded value whereas in PPI weights are retrieved from Supply Use Tables. PPI also includes services while WPI only has goods.
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Model for Producer Price Index ready, may replace WPI