NEW DELHI: The government on Thursday announced the formation of a panel of experts to revise the base year of Wholesale Price Index (WPI) and suggest a road map for switching over to the Producer Price Index (PPI).
The working group for revision of base year of WPI to 2022-23 from 2011-12 and decide on computational methodology to be adopted for WPI and PPI will be headed by member of Niti Aayog Ramesh Chand and will have 18 other members. The Working Group has been asked to submit its final report to the Office of the Economic Adviser at the Department for Promotion of Industry and Internal Trade (DPIT within 18 months..
Till the PPI stabilises, both WPI and PPI will run concurrently. All major economies like the US, China, Japan, Germany, France and other G-20 countries use PPI to measure the average changes in prices received by domestic producers for their output. Globally PPI tracks prices of both goods and services.
The panel announced on Thursday will have economists in the government, rating agencies, asset management companies, banks and representatives from the government and the Reserve Bank of India.
The panel will also suggest the commodity basket of WPI and PPI for the new base 2022-23 in the light of structural changes in the economy. It will also review the existing system of price collection and suggest changes for improvement.
The working group will also decide on the computational methodology to be adopted for WPI and PPI.
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.
The methodology for compilation of PPI has been approved by the Technical Advisory Committee on Statistics of Prices and Cost of Living. The panel will suggest further improvement in compilation and presentation.
The PPI has been discussed for the past 20 years when its idea was first mooted. While the need to move to PPI from WPI was expressed in 2003 it was only in 2014 that a working group was set up to determine the methodology and data requirements to move ahead. The report of the group came in 2017 but no decision was taken on it.
In 2019 the government had constituted a working group for revision of the current series of WPI that has 2011-12 as its base year. The task before the group was to suggest a new base year for WPI and suggest additions and deletions of commodities in the basket of goods whose prices are tracked to draw the index. The working group was also empowered to recommend a road map for moving to the Producer Price Index (PPI) from WPI. After many discussions another working group was announced on Thursday.
Source: The Financial Express
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