New Delhi, August 16: The Finance Ministry has called on all ministries and departments to adopt the Producer Price Index (PPI) instead of the Wholesale Price Index (WPI) for future government procurement contracts. This shift aims to improve provisions related to price increases and adjustments.
Since June, the Ministry of Commerce has been releasing monthly PPI figures for both goods and services to better reflect price changes at the producer level. Transitioning from WPI to PPI aligns with global best practices adopted by developed economies and recommendations from the International Monetary Fund (IMF).
According to an official statement, the availability of both output PPI and input PPI will enhance understanding of price changes for finished products and the inputs used in various industries. This will also clarify how inflation experienced by producers affects the pricing of finished goods.
In a letter sent to all ministries, the Expenditure Department of the Finance Ministry stated, “With the availability of PPI, ministries/departments are encouraged to adopt the Producer Price Index for all future contracts concerning price increase provisions instead of WPI.”
The revised WPI inflation series, using 2022-23 as the base year, was first released on June 15. This new series replaces the previous WPI series that used 2011-12 as the base year.
Additionally, a new output PPI series, trial input PPI, and a new service PPI series for seven services have been introduced, including banking, securities transactions, insurance, pension fund management, railways, air passenger services, and telecommunications.
Given the extensive use of WPI in price increase provisions, the revised series will be published alongside WPI for five years before phasing it out. This approach will provide users ample time to transition from WPI to PPI.
In the first phase, the service PPI for the seven services was developed based on data from administrative sources. Future phases will include more services based on data availability.
The compilation of WPI and output PPI is conducted monthly. The new WPI series has increased the total number of items from 697 to 957. New energy sources, such as solar and wind energy, have been included under the ‘Electricity’ group, along with nuclear power.
Crude petroleum and natural gas have been moved from ‘Primary Commodities’ to the ‘Fuel and Power’ segment. This reclassification is expected to enhance clarity, as this group already includes major fuels like coal, electricity, and petroleum products.
The statement also noted that the new WPI series incorporates improved methods for weight determination, better calculation processes, and enhanced estimation techniques for unavailable price data.
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ABs
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