Critically examine the limitations of WPI as a measure of inflation in India and how the proposed PPI addresses them.

Q. Critically examine the limitations of WPI as a measure of inflation in India and how the proposed PPI addresses them. (15 marks, 250 words)

The Wholesale Price Index (WPI), compiled by the Office of the Economic Adviser, DPIIT, gauges producer-side inflation. Its recent base-year revision from 2011-12 to 2022-23 and the parallel roll-out of Producer Price Indices (PPIs) underscore long-standing structural infirmities in the WPI framework [1].

Limitations of WPI - Price contamination: WPI uses transaction prices that embed indirect taxes and trade margins, distorting the true measure of price change [1]. - Coverage gaps: it excludes services (~55% of GDP) and, in the 2011-12 series, under-represented manufacturing [2]. - Representational lag: an ageing 2011-12 basket omitted renewable energy and newer goods, misreading the evolving output mix [1]. - No global comparability: WPI diverges from SNA 2008 / IMF PPI norms followed internationally [2]. - Non-target status: RBI's MPC anchors on CPI (4±2%), leaving WPI only an informational role.

How the proposed PPI addresses them - Measures basic prices excluding taxes and subsidies, capturing pure producer price movement [1]. - Introduces Service PPI, closing the services blind-spot [1]. - GVO-based weights and refined manufacturing price-collection widen and update coverage [2]. - Aligns with IMF PPI Manual, enabling cross-country comparison [1]. - Multi-tier vetting (Working Group under Dr. Ramesh Chand → TAC-SPCL → NSC) reinforces statistical credibility [2].

Yet PPI is no panacea—a five-year parallel run, base synchronisation with GDP (2022-23) and CPI, and capacity-building are essential [1][3]. Sequenced well, the WPI-to-PPI transition promises a globally comparable, structurally faithful inflation metric.

(~250 words)

Sources: 1. Base Year of Wholesale Price Index Revised from 2011–12 to 2022–23, PIB (02 Jun 2026) — DPIIT compilation, basic-vs-transaction prices, Service PPI, renewable-energy inclusion, IMF alignment, release schedule. 2. Constitution of Working Group for revision of WPI (Base 2011-12), PIB — coverage gaps, GVO weights, Ramesh Chand chair, TAC-SPCL/NSC vetting, SNA/PPI roadmap. 3. MoSPI revised base year of GDP from 2011-12 to 2022-23, PIB — parallel base-year synchronisation for macro coherence.