India To Replace WPI With Producer Price Index

India is preparing for a major overhaul of how it tracks inflation and producer prices. Starting 15 June, the government will launch a new Producer Price Index (PPI) while also introducing a revised Wholesale Price Index (WPI) series with 2022-23 as the new base year, replacing the current 2011-12 base.

But the bigger change is what comes next.

Why Is India Replacing WPI?

According to the government, they want to gradually move from WPI to PPI over the next five years. Eventually, the Producer Price Index will be the main indicator of inflation at the producer level in India. The existing WPI has been in existence for ages and mainly monitors price changes at the wholesale level.

In the meantime, the Indian economy has undergone drastic changes. The main drawback of WPI is that it only considers goods and does not include services. This does not give an accurate picture since services make up a significant portion of the Indian economy. The revamped PPI will take into account the expenses incurred by producers for both goods and services, which in turn should give a wider and clearer view of the changes in prices.

It also aligns India more closely with international statistical practices followed by many major economies.

What Happens On 15 June?

The Department for Promotion of Industry and Internal Trade (DPIIT) will release three new types of producer price indicators, which are the Output Producer Price Index (OPPI), Input Producer Price Index (IPPI), and Service Producer Price Index (Service PPI).

All will use 2022-23 as the base year. The Service PPI will initially cover seven major services sectors, and the index is expected to be released quarterly:

• Banking

• Securities transactions

• Insurance

• Pension fund management

• Railways

• Air passenger services

• Telecom

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What Happens To WPI?

WPI is not disappearing immediately. Instead, the government will run both systems in parallel during a transition period expected to last around five years. Officials have said the exact timeline for completely replacing WPI will depend on how the new indices perform in practice.

At the same time, the WPI itself is being updated. According to the Working Group report, the revised WPI will shift the base year from 2011-12 to 2022-23 and expand the commodity basket from 697 items to 957 items.

Source:

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