The beginning of the end of the Wholesale Price Index that the Government of India has been measuring regularly as a measure of inflation since Independence is drawing near with the administration preparing to launch Producer Price Index (PPI) as an inflation gauge.
According to reports, the Department for Promotion of Industry and Internal Trade (DPIIT) is about to finalise a model to launch PPI. The objective is to ultimately replace WPI with it.
One of the reasons guiding the government is that PPI is followed by most countries across the world. It has gradually caught on from the 1970s. A number of countries such as the US and members of the European Union measure PPI on a regular basis.
WPI vs PPI
PPI is superior to WPI on a few counts:
WPI records price changes at the point of bulk transactions and includes taxes and distribution costs involved in wholesale transactions. PPI, on the contrary, excludes indirect taxes.
The weightage of an item in measuring WPI is based on net traded value, but PPI weights are obtained from Supply Use Table..
Experts says PPI removes the multiple counting bias in WPI. Moreover, PPI includes services while WPI focuses only on manufacturing.
No imported products in PPI
There is another significant difference. WPI includes both products within the country and those imported from abroad. But PPI includes only the domestically produced products.
PPI has replaced WPI in most countries since it is conceptually in line with the internationally agreed System of National Accounts (SNA) to compute gauges of economic activity.
“Consultations with the Ministry of Statistics and Programme Implementation (MOSPI) have been done. The National Statistical Commission should see it once at least before it is placed before higher authorities… The model from our side is final and we have taken the International Monetary Fund’s advice on the methodology. The procedural clearances required will be worked on,” DPIIT secretary Rajesh Kumar Singh told the media earlier this week.
Complexity abounds
However, introducing a new statistical tool in a vast and complex country like India would need time. A lot of studies to determine appropriate sampling and affixing proper weightage, not to speak of the frequency of data collection have to be finalised before shaping the final model.
Experts have pointed out identifying the proper services that would represent a particular sector would be extremely crucial.
Bureaucrats said that the government has been trying to finalise a methodology for formulating a PPI against the backdrop of this country’s ground reality for about 20 years now.
A report submitted in 2017 highlighting the appropriateness of PPI said that WPI almost inevitably ends up with multiple counting. It also excludes the service sector, the importance of which is continuously growing in India.
The Wholesale Price Index or WPI has been one of the two common gauges of inflation in India. But the govt is preparing Producer Price Index to replace it due to some inherent advantages. Economy Business News – Personal Finance News, Share Market News, BSE/NSE News, Stock Exchange News Today
