India Launches Producer Price Index; WPI to be Phased Out in Five Years

India has officially commenced the release of the Producer Price Index (PPI) for goods and services, marking a historic shift in how the nation measures inflation. This move signals the beginning of a five-year transition period during which the long-standing Wholesale Price Index (WPI) will be gradually phased out and replaced.

Transitioning from WPI to PPI: A Global Standard

The decision to shift from WPI to PPI aligns India with the practices of advanced economies and follows specific recommendations from the International Monetary Fund (IMF). While the WPI has been a staple for measuring wholesale inflation, the PPI offers a more sophisticated lens by capturing price changes from the producer's perspective.

Crucially, the new framework distinguishes between "Output PPI" and "Input PPI." This distinction allows policymakers and businesses to understand how price fluctuations in raw materials (inputs) are passed through to the final goods being produced (outputs). This granularity is expected to significantly improve the accuracy of National Accounts and GDP compilation by providing a better estimation of real value addition.

First Data Release and Key Inflation Metrics

In its inaugural release, the Commerce and Industry Ministry provided a snapshot of the economic landscape for May 2026. As wholesale inflation climbed to 9.68% in May (up from 8.26% in April), the Output PPI inflation also saw a notable rise, moving from 8.1% to 9.4% during the same period.

The All-India Output PPI for all commodities stood at 109.6 in May 2026, compared to 108.6 in April. To ensure data integrity, the ministry is also publishing the All-India trial Input PPI for the manufacturing sector, which stood at 104.9 in May, on an experimental basis to gather stakeholder feedback.

Structural Differences and Sectoral Weightage

The new index utilizes a revised base year of 2022-23, covering 957 items. The composition of the Output PPI (Goods) reflects a modern economy, with manufactured items carrying the highest weight of 69.93%. This is followed by agriculture, forestry, and fishing at 22.16%, electricity at 4.49%, and mining and quarrying at 3.42%.

This differs from the old WPI structure, where manufactured products held a 63.12% weight, fuel and power accounted for 14.11%, and primary articles stood at 22.76%.

The rollout will also encompass a Service PPI. In its first phase, this will cover critical sectors including banking, securities transactions, insurance, pension fund management, railways, air passenger transport, and telecom services. Future phases will expand this coverage using data from price surveys and the GSTN.

Key Takeaways