New PPI index likely to replace WPI by FY16; trials to begin soon

Across the world, WPI has been replaced by PPI given its comprehensive nature.

The government is expediting the work to replace Wholesale Price Index (WPI), used for capturing price movements to decide on policy measures, with a more effective and comprehensive Producers Price Index (PPI) by the next fiscal.

A senior official told The Indian Express that the trial runs for the new index are likely to begin soon and the department of industrial policy and promotion (DIPP) is considering the release of the PPI from the next fiscal parallely with the WPI data.

The PPI provides a broader coverage in terms of products and industries and it also includes services, something which is not a part of the WPI.

?The data is likely to be released on a quarterly basis to start with. Base price, exclusive of taxes, trade and transport margins, would be used to compute the new index. The base year of 2011-12 will be used for comparisons,? the official said. Most countries release the data on a monthly basis, while Australia releases the PPI data quarterly.

Base price is the price received by the producer for goods and services that are sold. It does not include taxes collected by the producer from purchasers. Across the world, WPI has been replaced by PPI given its comprehensive nature. Countries like Japan, the UK, Germany, the US, Australia, Israel, Ireland, Canada, the Netherlands and Chile have adopted it for better policy targeting. ?By introducing the PPI, the anomaly of not including services will get addressed. The most common services to be included are water supply, waste management, sewerage and remediation activities,? the official added. The DIPP has reached out to Japanese authorities for providing it information about the working of PPI.

Last month, the government had set up a 12-member working group under the chairmanship of BN Goldhar, professor of economics at the Institute of Economic Growth, for defining the PPI conceptually in Indian context, determining its methodology, data needed for its construction, and selecting a base year among other things.

So far, two panels ? both under former Planning Commission members Abhijit Sen and later Saumitra Chaudhuri ? have made a case for deliberating on the issue of constructing PPI and eventually migrating from WPI.

The WPI, which was first published in January 1942, has undergone several changes since. From September 14, 2010, the base year for WPI was shifted from 1993-94 to 2004-05.

The new series is representative of commodity basket of 676 items with major groups including primary articles, fuel and power and manufactured products. However it does not include the services sector, which contributes almost 60 per cent to the GDP. While WPI will be phased out, the Consumer Price Index (CPI) will continue to gauge the retail price movement.

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First published on: 08-10-2014 at 10:08 IST