Shift from WPI to PPI
- December 13, 2023
- Posted by: OptimizeIAS Team
- Category: DPN Topics
Shift from WPI to PPI
Subject :Economy
Section :Inflation and Unemployment
Reason:
- India plans to transition from Wholesale Price Index (WPI) to Producer Price Index (PPI) in the future.
- Most G20 countries, including China, already use PPI, making it a more globally accepted practice.
Current Status:
The National Statistical Commission (NSC) is examining a working group report on the roadmap for introducing PPI.
Recommendations from the NSC are awaited before further decisions are made.
Future Plan:
Initially, both WPI and PPI may coexist. After a few years, there is a possibility of phasing out WPI, aligning with global practices.
Background:
Past Discussions:
A working group was established to determine the methodology and data requirements for the transition. In 2019, a working group was formed to revise the current WPI series, suggesting a new base year and considering the shift to PPI.
Base Year Revision:
Work is also underway to revise the WPI base year from 2011-12 to 2017-18. This revision aims to present a more realistic picture of the country’s price situation. The DPIIT issued a draft technical report suggesting changes in the base year and additions to the commodity basket.
Wholesale Price Index (WPI):
WPI measures the average change in the selling prices received by producers for their goods and services at the wholesale level.
- Commodity Basket:
- It includes a representative basket of goods covering various sectors like industry, agriculture, and mining.
- WPI is calculated based on the wholesale prices of a set of commodities at a specific point in time.
- Primarily used by policymakers and analysts to assess inflation at the wholesale level.
- Helps in analyzing price movements at the early stages of the supply chain.
- In India, WPI has been historically used as a key indicator of inflation. However, there is a plan to transition to the Producer Price Index (PPI).
Consumer Price Index (CPI):
- CPI measures the average change in the prices paid by consumers for goods and services they commonly purchase over time.
- It includes a representative basket of goods and services commonly consumed by households.
- CPI is calculated based on the prices of goods and services at the retail level, reflecting the expenses incurred by consumers.
- Widely used to assess inflation from the perspective of the average consumer.
- Central for adjusting wages, pensions, and other income-related aspects.
- Multiple CPIs are calculated in India, such as CPI for Industrial Workers (CPI-IW) and CPI for Agricultural Laborers (CPI-AL).
Producer Price Index (PPI):
- PPI measures the average change in the selling prices received by producers for their goods and services.
- It includes a representative basket of goods and services produced by industries.
- PPI is calculated based on the prices of goods and services at various stages of production.
- Primarily used to analyze inflation from the perspective of producers.
- Reflects price movements at different stages of the production process.
- India is considering transitioning from WPI to PPI to align with global practices and improve the accuracy of inflation measurement.
Key Differences:
- Focus:
- WPI focuses on the wholesale level, assessing price changes at the early stages of production.
- CPI focuses on the retail level, reflecting the expenses incurred by consumers.
- PPI assesses price changes at different stages of the production process.
- Basket Composition:
- WPI and PPI include a basket of goods and services related to production.
- CPI includes a basket of goods and services commonly consumed by households.
- Calculation Basis:
- WPI and PPI are calculated based on wholesale prices.
- CPI is calculated based on retail prices.
- Usage Perspective:
- WPI and PPI provide insights from the producer’s perspective.
- CPI provides insights from the consumer’s perspective.
- Policy Implications:
- CPI is crucial for adjusting income-related aspects, while WPI and PPI are vital for policy formulation related to production and industry.
About National Statistical Commission (NSC) –
The National Statistical Commission (NSC) is a statutory body in India that operates as an autonomous advisory body dedicated to enhancing the statistical infrastructure and promoting the use of reliable and timely statistical data for informed decision-making.
- Establishment: The Government of India through a resolution dated 1st June, 2005 set up the National Statistical Commission (NSC). The setting up of the NSC followed the decision of the Cabinet to accept the recommendations of the Rangarajan Commission, which reviewed the Indian Statistical System in 2001. The NSC was constituted with effect from 12th July 2006 with a mandate to evolve policies, priorities and standards in statistical matters. The NSC has four Members besides a Chairperson, each having specialization and experience in specified statistical fields.
- Objective: The primary objective of the NSC is to evolve policies, priorities, and standards in statistical matters, ensuring statistical coordination among various agencies involved in statistical activities, and improving the statistical system in the country.
- Composition: The NSC is headed by a part-time Chairperson, and it includes a maximum of seven members. The Chief Statistician of India (CSI) and Secretary of the Ministry of Statistics and Programme Implementation (MoSPI) serve as ex-officio members.
- Functions:
- Advisory Role: The NSC acts as the apex advisory body for all statistical matters, providing guidance on statistical methodology, data collection, and dissemination.
- Coordination: It promotes coordination among various statistical agencies to avoid duplication of efforts and ensure the efficient use of resources.
- Policy Formulation: The commission is involved in formulating policies related to statistical activities and recommends improvements in the statistical system.
- Review and Evaluation: The NSC reviews the functioning of the statistical system, evaluates data quality, and suggests measures for improvement.
- Reports and Recommendations: The NSC submits its reports and recommendations to the government, and these play a crucial role in shaping the statistical policies and practices in the country.
- Independence: The NSC operates independently in its advisory role, providing an unbiased and expert perspective on statistical matters.
- Statistical Workshops and Seminars: The NSC conducts workshops, seminars, and conferences to promote awareness and understanding of statistical concepts and methodologies.
- Statistical Agencies: While the NSC itself does not collect or compile statistical data, it oversees and coordinates the activities of various statistical agencies, including the Central Statistical Office (CSO) and the National Sample Survey Office (NSSO).