Base Year Revision of WPI and Introduction of PPIs

Syllabus: GS3/ Economy

Context

• The Government of India has approved the revision of the base year of the Wholesale Price Index (WPI) from 2011–12 to 2022–23.

What is the Wholesale Price Index (WPI)?

• WPI measures the average change in prices of goods at the wholesale or producer level before they reach consumers.
• It is compiled and released by the Office of Economic Adviser (OEA), Department for Promotion of Industry and Internal Trade (DPIIT).
• WPI is widely used in;
  • Price escalation clauses in contracts.
  • Industrial and infrastructure projects.
  • Economic analysis and policy formulation.

Major Changes in the Revised WPI

• Increased number of Items: The total number of items has increased from 697 to 957.
• Inclusion of Renewable Energy: Solar power and wind energy have been included under the Electricity group.
  • Nuclear electricity has also been added to the basket.
• Reorganization of Energy Categories: Crude petroleum and natural gas have been shifted from the “Primary Articles” category to the “Fuel and Power” category.
• Improved Methodology for Derivation of Weights: Gross Value of Output (GVO) has been used for preparing weights for WPI (2022-23) as compared to Net Traded Value i.e. GVO + Imports – Exports, used in WPI 2011-12 series.
  • The weights based on GVO reflect the economic significance of commodities in a better way from the producer’s perspective, as they represent domestic production.
• Improved Method for Imputing Missing Price Data: ‘Targeted Mean Imputation’ method has been used, in place of ‘Carry-forward’ method being used in the existing series of WPI.

Introduction of Producer Price Indices (PPIs) in India

• The government would also release new series of Output Producer Price Index (OPPI), Trial Input Producer Price Index (IPPI), and Service Producer Price Index (Service PPI) of seven services, viz., Banking, Securities Transaction, Insurance, Management of Pension Funds, Railways, Air (Passenger), and Telecom with base year 2022-23.
• Output Producer Price Index (OPPI): OPPI measures the average change over time in the prices that producers receive for the goods and services they sell.
  • It captures price movements at the producer or factory gate level before taxes, trade margins, and transportation costs are added.
• Input Producer Price Index (IPPI): IPPI measures the average change in prices paid by producers for inputs such as raw materials, intermediate goods, energy, and other inputs used in the production process.
  • It reflects the cost pressures faced by producers.
• Service Producer Price Index (Service PPI): Service PPI measures the average change over time in the prices received by service providers for the services they offer.
  • It tracks inflation in the services sector from the producer’s perspective.

Source: PIB