P L RAJ IAS & IPS ACADEMY - AN INSTITUTION FOR IAS, IPS AND TNPSC EXAMINATION

PRODUCER PRICE INDEX (PPI) IN INDIA: ECONOMY

NEWS: DPIIT close to finalising model to launch Producer Price Index in India

WHAT’S IN THE NEWS?

Producer Price Index (PPI) in India:

Overview

DPIIT Initiative: The Department for Promotion of Industry and Internal Trade (DPIIT) is working towards introducing the Producer Price Index (PPI) to potentially replace the Wholesale Price Index (WPI).
Objective: Align with international standards and provide a better reflection of economic activity.

What is PPI?

Definition: Tracks price fluctuations throughout the production process, measuring average selling price changes received by producers for goods and services.
Coverage: Monitors price changes for goods and services sold to both final consumers and intermediate consumers.
Purpose: Serves as an inflation indicator focusing on price increases at the producer level, excluding indirect taxes, transport costs, and trade margins.

Need for PPI

Tracking Inflation: Essential for monitoring wholesale price changes and inflationary trends.
Economic Activity Indicator: Rising PPI indicates increased production activity, while falling PPI suggests reduced production.
Business Use: Helps businesses determine pricing strategies for products and services.
Government Policy: Aids governments in formulating economic policies and making informed decisions.

Example

Agricultural Commodities: PPI could monitor price variations in commodities like wheat, rice, or cotton, providing insights into inflation trends within the agricultural sector.

Current Status and Future Plans

Consultations and Model Finalization: DPIIT has consulted with the Ministry of Statistics and Programme Implementation (MOSPI) and finalized the PPI model with IMF-advised methodology.
Procedural Clearances: Underway, with no specific timeline for implementation yet disclosed.
Transition from WPI to PPI: Anticipated transitional period where both indices will co-exist.

Conclusion

Significance: The introduction of PPI aims to align India with global standards in economic measurement, offering a more accurate reflection of price movements in the production sector.