Financial Daily from THE HINDU group of publications
Friday, Sep 30, 2005
Industry & Economy - Economy
Producer price index to replace WPI next fiscal
New Delhi , Sept 29
THE wholesale price index (WPI), which is currently used to measure changes in the average price level at the wholesale and retail levels of transactions in the country, would be replaced by the producer price index (PPI) by the next fiscal.
This was stated by Dr Abhijit Sen, Member of Planning Commission, at a seminar organised by PHDCCI jointly with the Ministry of Industry.
"This would, however, not mean that the WPI would be dismantled all together. The WPI would be restructured and would continue side by side," Dr Sen added.
Inviting suggestions from experts on the subject, Dr Sen said that in the process of moving from WPI to PPI, the Commission wants to have detailed interactions, according to a release.
This is being done to reconstruct the existing WPI and develop the concept of PPI, with addition of services sector to the basket in due course.
Dr Sen said that as a preliminary move, the indexing of all transactions in the case of manufacturing and agriculture would be at the point of first sale.
Due to non-availability of authentic and quality data, the PPI may exclude some inputs from agricultural and services sectors.
Exports and imports would also be redefined; any import where the point of sale is not in India would not enter PPI.
The real problem lies in collecting price data for the services sector. The Reserve Bank of India and the Economic Advisory Committee have already begun the exercise to measure price index for certain types of services, the release said.
"Whereas the exercise is moving on a fast track, the services sector would only be incorporated after bringing out clearance in conceptual issues over a period of five years," Dr Sen said.
Even in case of the manufacturing sector, currently only the large firms are being covered; a major drive to include the small-scale sector is being initiated.
In this regard, cluster approach is being adopted to widen the index base. In case of large firms also, the companies are being advised to include as many products as possible.
Dr Sen assured that the data made available would be used for the purposes of calculating price index only and not for any other purpose.
Mr K.N. Memani, President of PHDCCI, in his welcome remarks, said that the proposed PPI should be a comprehensive index that would include services that comprise more than 50 per cent of GDP.
He added that for a start, only those service industries of relative importance should be included in the PPI for which data are readily available; as the exercise proves purposeful, the index could eventually be developed to include both commodities and services.
He also underlined the need to measure prices at the level of final demand and not at intermediate demand in order to avoid the cascading effect.
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