The Department for Promotion of Industry and Internal Trade (DPIIT) is finalising a model to launch a Producer Price Index (PPI) in India. This index will replace the Wholesale Price Index (WPI).
- It has replaced WPI in most countries as it is conceptually in line with the internationally agreed System of National Accounts (SNA) to compile measures of economic activity.
- According to a report submitted in 2017 by a working group on PPI headed by economist B N Golder, many advanced and emerging economies have switched to PPI from WPI since the 1970s.
Causes of shifting from WPI to PPI:
- To do away with the bias of double/multiple counting inherent in WPI,
- To compile indices that are conceptually consistent with the National Accounts Statistics (NAS) for use as deflators.
- India is one of the few countries that still uses WPI. All members of the G-20, including China have PPI. PPI globally tracks price movements in both goods and services.
Key features of Producer Price Index (PPI)
- PPI measures wholesale prices from the point of view of producers of goods and services by tracking prices at different stages of production.
- PPI is different from WPI in the way that it measures the average change in prices received by producers and excludes indirect taxes.
- WPI captures the price changes at the point of bulk transactions and may include some taxes and transportation costs.
- PPI also removes multiple counting bias inherent in WPI.
- The shedding of additional costs on products imposed by taxes and transportation makes it a more accurate gauge of price movements.
- Weight of an item in WPI is based on net traded value whereas in PPI weights are retrieved from Supply Use Tables.
- PPI also includes services while WPI only has goods.
