The Indian government has finally outlined a roadmap for introducing the Producer Price Index (PPI), nearly two decades after a working group was established to compile it. On June 15, the government will unveil the revised Wholesale Price Index (WPI) with a 2022-23 base year, and alongside it, the PPI will be introduced. Over the next five years, the government intends to phase out the WPI and adopt the PPI as the primary measure for tracking factory gate inflation, which reflects the prices borne by producers.
Key Details of the New Index
Principal Economic Advisor in DPIIT, Praveen Mahto, informed reporters that the PPI, also based on the 2022-23 base year, will consist of three components: output and input PPI for the manufacturing sector, and a services PPI covering seven categories. These categories include banking, securities transaction, insurance, management of pension funds, railways, air (passenger), and telecom.
Given the widespread use of WPI in price escalation clauses in contracts, the government will continue to publish WPI for five years. After that period, it will be discontinued, Mahto said.
Services PPI and Future Expansion
Dilip Kumar Sinha, Deputy Director General, stated that the services PPI will be released quarterly, and efforts are underway to include other service sectors as well.
This shift brings India in line with most advanced economies, offering policymakers a comprehensive inflation metric that tracks price pressures faced by both goods and services producers. Unlike WPI, which only tracks price changes experienced by goods producers, the PPI will also act as an early warning indicator for retail inflation. The WPI includes taxes and logistics costs borne by wholesalers, thus distorting the input costs of production.
Upgrades to WPI
The WPI itself is being upgraded, with the coverage of the basket set to increase from 697 items to 957. New sources of energy, such as solar and wind, along with nuclear, have been added under the electricity group.
