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India is preparing for a major upgrade in how it tracks inflation, with the government set to gradually replace the Wholesale Price Index (WPI) with a new Producer Price Index (PPI) framework.
What's going on: every inflation measure uses a "base year" as a reference point. India's current WPI uses 2011-12 as its base year, which is now more than a decade old. Since the economy has changed significantly since then, the government is updating the system to better reflect today's industries, products, and services.
The deets: from June 15, the government will launch a new WPI series using 2022-23 as the base year. Alongside this, it will also introduce three new measures:
- Output PPI (OPPI): tracks the prices businesses receive when they sell goods and services.
- Input PPI (IPPI): tracks the prices businesses pay for raw materials, fuel, and other inputs.
- Service PPI: tracks price changes in service sectors like banking, insurance, telecom, airlines, and railways.
For the next five years, WPI and PPI will run side-by-side. Around 2031, PPI is expected to become the main measure of non-retail inflation.
Why is changing: WPI mainly focuses on goods. But today's economy is very different from 2011. Services now account for more than half of India's GDP, yet they are barely captured in the current WPI system.
The new PPI framework gives policymakers a clearer picture of what's happening inside the economy. It can show whether rising costs for businesses are eventually being passed on to customers.
Think of it like this: WPI tells you the price of the finished product leaving a factory. PPI tells you both what the factory is charging and what the factory itself is paying for raw materials. That gives a much more complete view of inflation.
