Ramesh Chand Committee: Revising the Wholesale Price Index (WPI) and Transitioning to Producer Price Index (PPI)

GS 3 – Economy

Context:
The Indian government has set up an 18-member expert panel, headed by NITI Aayog member Ramesh Chand, tasked with revising the Wholesale Price Index (WPI) and exploring a shift towards the Producer Price Index (PPI).

Wholesale Price Index (WPI)

The WPI measures the changes in the prices of goods sold and traded at the wholesale level. It is a critical indicator for tracking inflationary trends in the economy.

Released by: The Office of Economic Advisor, Department of Industrial Policy and Promotion, Ministry of Commerce and Industry.

Aim:

• To track supply and demand dynamics in industries.
• To provide a measure of wholesale inflation.
• To align with other economic indicators, like GDP.

Key Features:

• Base Year: The base year is currently updated to 2011-12, with ongoing revisions for 2022-23.
• Number of Items: It monitors 697 items, including:
  • 117 primary items.
  • 16 fuel and power items.
  • 564 manufactured products.
• Excludes: The WPI does not track the services sector, unlike the Consumer Price Index (CPI), which includes both goods and services.

Producer Price Index (PPI)

The PPI tracks the average change in prices that producers receive for their goods and services, both domestically and for exports.

Types:

1. Output PPI: Measures the prices of goods and services as they leave production sites.
2. Input PPI: Monitors the prices of goods and services that enter production processes.

Advantages of PPI over WPI:

1. Industry-Centric Inflation Measurement: It captures price changes from a producer’s perspective, offering an early indication of inflationary trends.
2. Focus on Production Stages: The PPI reflects price changes before goods and services reach consumers, enabling more informed policy decisions.
3. International Alignment: It adheres to the System of National Accounts (SNA), making it more comparable globally.
4. Broader Scope: The PPI includes both goods and services, unlike WPI, which is limited to goods.
5. Global Adoption: Many countries have shifted from using WPI to PPI for more accurate measures of economic activity.