The Government of India has set up a working group under NITI Aayog member Ramesh Chand for revising the base year of the current series of Wholesale Price Index (WPI) to 2022-23 from 2011-12 currently.
Objectives of the Revision:
- Update Base Year: Shifting the base year from 2011-12 to 2022-23 reflects the structural changes in the economy and makes the index more representative of current economic conditions.
- Since its introduction in 1942 with the base year 1939, WPI has undergone seven base year revisions to keep the index aligned with evolving economic structures: 1952-53, 1961-62, 1970-71, 1981-82, 1993-94, 2004-05 and 2011-12.
- Commodity Basket Revision: The working group will suggest an updated commodity basket for both WPI and PPI (Producer Price Index), ensuring the inclusion of products and services that have gained importance over the past decade.
- At present, the WPI has a total of 697 items, including primary articles (117), fuel and power (16), and manufactured products (564).
- WPI revision is a periodic exercise.
- Improve Reliability: Enhancements to the price collection system and computational methodologies aim to improve the reliability and accuracy of the indices.
- Transition to PPI: By focusing on PPI, the government aims to reduce issues like double counting in WPI, aligning with international standards.
Differences Between WPI and PPI:
| Feature | WPI | PPI (Producer Price Index) |
|---|---|---|
| Coverage | Goods only | Goods and some services |
| Focus | Price changes in wholesale markets | Prices received by producers at different production stages |
| Double Counting Issue | Prone to double counting | Avoids double counting |
| Purpose | Measures general price movement in wholesale markets | Tracks production-level price changes |
Global Relevance of PPI:
PPI, widely used in advanced economies, offers a nuanced view of price changes by tracking prices at various stages of production. For example, the U.S. Bureau of Labor Statistics publishes PPI monthly, reflecting its importance in monitoring inflation trends comprehensively.
Expected Outcomes:
- Enhanced Accuracy: The transition to PPI is expected to address double counting and provide a clearer picture of inflation.
- Policy Alignment: Modern indices like PPI support better decision-making and policy formulation.
- Global Compatibility: Aligning with PPI practices improves India’s economic comparability on an international level.
