India is set to transition to a more comprehensive system for tracking wholesale price changes through the Producer Price Index (PPI), which is currently being reviewed by a multi-departmental team, according to government officials.
At present, the country relies on the Wholesale Price Index (WPI), a system introduced in the 1970s, to measure the bulk rates of 117 primary articles, 16 fuel and power items, and 564 manufactured products—covering the most-traded goods in the economy.
Most advanced economies utilize the PPI to track producer prices, adhering to the UN’s System of National Accounts. This framework outlines methods for calculating key indices like Gross Domestic Product (GDP), which measures the total value of goods and services produced by an economy.
India’s Ministry of Statistics uses a WPI-based ‘deflator’ to calculate real or inflation-adjusted GDP growth. A GDP deflator measures how much the GDP value decreases after accounting for inflation.
Meanwhile, the Reserve Bank of India (RBI) uses the Consumer Price Index (CPI) at the retail level for inflation forecasting and managing inflationary expectations, which reflects consumers’ predictions of future price changes—an important factor in actual inflation trends.
“The model for PPI is ready, developed in consultation with the International Monetary Fund to ensure the appropriate methodology. It will be reviewed by the National Statistical Commission,” said a government official, who asked to remain anonymous.
Unlike WPI, the PPI excludes indirect taxes and logistics costs. The WPI does not fully reflect producer-level prices and also omits the services sector, which represents 55% of India’s GDP.
Government economists have long advocated for a shift from WPI due to its limitations. For instance, WPI often double-counts the same commodity, while PPI captures prices that domestic producers receive at various stages of production, a second official explained.
“The government needs to determine which services to include in the PPI and how to assign weights to different items to accurately reflect inflation,” said PC Mohanan, former acting chairman of the National Statistical Commission.
When the PPI is implemented, officials expect a gradual transition, where both PPI and WPI will be used to calculate wholesale inflation.
In 2017, a working group led by economist BN Golder and established by the Ministry of Commerce and Industry recommended aligning India’s wholesale inflation metrics with the UN’s PPI standards.
