On Thursday, the government announced the formation of an expert panel tasked with revising the base year of the Wholesale Price Index (WPI) and providing a roadmap for transitioning to the Producer Price Index (PPI).
Composition of the Working Group
The working group will be led by Ramesh Chand, a member of NITI Aayog, and will include 18 other members. This group has been assigned the responsibility of revising the base year of the WPI from 2011-12 to 2022-23 and determining the computational methodology for both WPI and PPI. The final report is expected to be submitted to the Office of the Economic Adviser at the Department for Promotion of Industry and Internal Trade (DPIT) within 18 months.
Concurrently Running WPI and PPI
Until the PPI stabilizes, both WPI and PPI will be used concurrently. Major economies, including the US, China, Japan, Germany, and France, already use PPI to track the average changes in prices received by domestic producers for their output. PPI globally tracks the prices of both goods and services.
Panel Composition
The panel will include economists from the government, rating agencies, asset management companies, banks, and representatives from the government and the Reserve Bank of India (RBI). The panel’s role will also involve suggesting the commodity basket for WPI and PPI in the light of structural changes in the economy and reviewing the current price collection system to propose improvements.
Differences Between WPI and PPI
- WPI: Measures the price changes at the point of bulk transactions, including some taxes and transportation costs.
- PPI: Measures the average price changes received by producers, excluding indirect taxes, and is considered a more accurate gauge of price movements as it removes multiple counting biases inherent in WPI.
The weight of an item in WPI is based on its net traded value, while in PPI, weights are derived from Supply Use Tables. Additionally, PPI includes services, whereas WPI only tracks goods.
Methodology for PPI Compilation
The methodology for compiling the PPI has been approved by the Technical Advisory Committee on Statistics of Prices and Cost of Living. The panel will also suggest further improvements in the compilation and presentation of the PPI.
Historical Context of PPI Discussion
The idea of transitioning to PPI has been discussed for the past 20 years. The need to move from WPI to PPI was first expressed in 2003, and in 2014, a working group was set up to determine the methodology and data requirements. The report from this group was submitted in 2017, but no decision was made at that time. In 2019, another working group was formed to revise the current WPI series, which uses 2011-12 as the base year. The new working group announced on Thursday will continue this work.
Multiple-Choice Questions (MCQs):
- Who will lead the newly formed working group for revising the WPI base year?
- A) Nirmala Sitharaman
- B) Ramesh Chand
- C) Shaktikanta Das
- D) Arvind Subramanian
- What is the current base year of the Wholesale Price Index (WPI)?
- A) 2022-23
- B) 2011-12
- C) 2005-06
- D) 2015-16
- What is the primary difference between WPI and PPI?
- A) WPI tracks only services, while PPI tracks goods and services.
- B) WPI includes taxes and transportation costs, while PPI excludes indirect taxes.
- C) PPI is used only by India, while WPI is used globally.
- D) PPI is a less accurate measure of price movements than WPI.
- Which of the following countries uses the Producer Price Index (PPI) to track price changes?
- A) India
- B) China
- C) Brazil
- D) Australia
- What is the role of the new working group formed by the government?
- A) To revise the base year of WPI and suggest a roadmap for switching to PPI.
- B) To reduce taxes on goods and services.
- C) To create a new index for measuring inflation.
- D) To eliminate WPI and only use PPI.