Explained | Why Centre is replacing Wholesale Price Index with Producer Price Index

The government aims to offer a more realistic assessment of inflationary trends in the economy

New Delhi: With an aim to offer a more realistic assessment of inflationary trends in the economy, the government has decided to phase out the Wholesale Price Index (WPI) and introduce a detailed Producer Price Index (PPI) covering output, input and services prices.

The government has revised the base year of WPI to 2022-23 from the existing 2011-12.

The Office of Economic Adviser, under the Department for Promotion of Industry and Internal Trade (DPIIT), will accordingly release the revised series of WPI with the new base year on June 15, which would replace the existing series with base year 2011-12.

Here are a few questions and answers to understand issues related to PPI.

Advantages of moving from WPI to PPI

PPI is more consistent with the National Account framework and aligned with global best practices adopted by advanced economies.

Availability of both Output PPI and Input PPI explains how inflation experienced by producers on input items is passed through to the output being produced.

Further, both the PPIs provide for an opportunity to eliminate the double counting of inflation, unlike WPI.

PPI includes services as well in the basket, whereas WPI covers goods only.

Transition from WPI to PPI

Considering the wide usage of WPI in price escalation clauses, the index with a new base year will be released for five years from the date of release of the revised series, along with PPI and will be discontinued thereafter.

This would give sufficient time to users to switch from WPI to PPI.

The transition from WPI to PPI is in alignment with the global best practices adopted by advanced economies and the recommendations of the International Monetary Fund (IMF).

Plan for release of services PPI

It will be released on a quarterly basis. The release schedule is being finalised in consultation with the Ministry of Statistics and Programme Implementation.

Initial services PPI will include seven services: Banking, Securities Transaction, Insurance, Management of Pension Funds, Railways, Air (Passenger) and Telecom.

Difference between WPI and PPI

In India, WPI is similar to Output PPI. Both are compiled on the basis of prices received by the producers.

The difference lies in terms of the Weighting diagram. In WPI, Weights are based on Gross Value of Output estimates taken from National Accounts at the broad sector level.

On the other hand, in Output PPI, the weighting diagram is based on the Supply Table of National Accounts.

Input PPI is different from WPI in the concept of price itself. WPI is based on the Basic Price, whereas the Input PPI is based on the purchaser's price.

Output PPI and Input PPI

Output PPI is compiled on the basis of prices received by the producer. This price is called the Basic Price, which does not include net tax and trade, and transport margin.

On the other hand, Input PPI is compiled on the basis of prices paid by the producers to purchase input items. This price is called the Purchaser's Price, which includes trade and transport margin.