Big Changes In WPI

Measuring economic parameters has always been a concern for countries. Many new parameters have come up in recent times, including the Happiness Report, Purchasing Power Parity, etc. One such very popular index is the Wholesale Price Index or WPI as we commonly call it. Like the change in post pandemic economy, there have been changes in how we calculate industry outputs. As per a new report, the service sector will now become a part of the Wholesale Price Index (WPI). Till today, goods have been a part of WPI, while services have not been so.

What is WPI?

The wholesale price index, as the name indicates, is used to measure the average change in price in the sale of goods in bulk quantity by the wholesaler. We do not measure this index at the level of the consumer. The people concerned here are factory producers and wholesalers who are producing and purchasing the factory goods. The price fluctuation by wholesalers is counted under WPI. It is a goods-based index only as of today and does not include services. An alternative perspective can be, WPI measures changes in the commodity at the selected level before it reaches the final level, that is, the consumer. This is before the consumption price is decided.

This index is published by the economic advisor under the Ministry of Commerce and Industry. The goods covered under WPI include primary fuel, power, and manufacturing products. It releases weekly for primary articles, fuels, and power. Any index Is based on the consumption pattern, that is, market demand. Like a lot of indices, WPI has a base year, which is 2011-12 presently. It is seen as ground zero, that is, we take that consumption pattern changed from this year.

What's new?

A government panel headed but Ramesh Chand is finalising the changes in WPI. In a groundbreaking approach, the new recommendations are set to include 60 percent of the economy for the first time. This is a big leap for a mammoth economy like India. This is the first suggestion. Secondly, the service sector, which is not a part of WPI must be included.

However, other members of the panel are saying developing an index of this scale will take time. They are also saying that obtaining data for financial services and communications, it is difficult to obtain data for other services as they are not organised. These include education, healthcare, and other non-centralised services. Also, Consumer Price Index (CPI) includes service sector data already. Ramesh Chand says we must include services in WPI as the CPI measures services at the consumer level.

The committee has also suggested that we change the base year from 2011-12 to 2017-18. However, some economists do not agree with this. They say the pandemic has completely reshuffled the economy, as well as the consumption pattern. The consumption pattern in 2017-18 is radically different from the 2022 consumption pattern. We must take a more recent year as the base year henceforth. The economy is going through turbulent times in terms of inflation, rise in gas prices, as well as interest rates of the central bank. These changes are also reflected in how we calculate output and what we value in the economy.