The Wholesale Price Index (WPI) has been the go-to metric for Indian policymakers to analyse inflation at the producers’ end since ages. However, with changing patterns of consumption and supply chains, it became an insufficient tool to capture a realistic picture of the economy, necessitating a comprehensive overhaul. In a sweeping shake-up, the Ministry of Commerce last week decided to retire WPI and transition to a modern Producer Price Index (PPI). The shift, it said, is aligned with global best practices.
The new PPI suite will include three components - Output Producer Price Index (OPPI), Trial Input Producer Price Index (IPPI) for manufacturing and Service Producer Price Indices covering seven major service sectors as of now. The transition is expected to be better aligned with modern economic structures, national accounts methodology and international statistical standards.
The transition will be gradual due to the extensive use of WPI in contracts and price escalation clauses, the Department for Promotion of Industry and Internal Trade (DPIIT) said. However, businesses will be encouraged to use PPI as the parameter going forward. The government will release both the PPI and WPI data from June 15 for five years till the transition is complete.
Rajni Thakur, Chief Economist, L&T Finance said, “India has gradually moved away from a predominantly wholesale-driven market toward a more integrated retail-oriented system. Such changes are part of a broader transformation that has been taking place across sectors. The adoption of PPI also improves international comparability.”
WPI failed to capture reality
Services account for more than half of the country’s economic output. As per the Economic Survey 2025-26, released in January 2026, the share of services in the GDP rose to 53.6% in the first half of FY26. Its share in gross value added (GVA), too, reached a historic high of 56.4% as per the FY26 First Advance Estimates, reflecting the rising importance of modern, tradable, and digitally delivered services. India is now the world’s seventh-largest exporter of services, with its global share more than doubling from 2% in 2005 to 4.3% in 2024. Yet, WPI tracks only price movement in traded goods, not services.
Besides, supply chains have become more complex as India’s manufacturing sector is increasingly dependent on imported inputs. Retail markets have expanded, while the distinction between wholesale and retail channels is also gradually diminishing. Economists have long argued that WPI has become an increasingly imperfect proxy for production costs and isn’t the right representation for capturing inflation.
"WPI concept is only for goods which are traded. PPI captures production. Service is also produced, so it is part of PPI,” said Principal Economic Adviser, DPIIT, Praveen Mahto. The capturing of both Output and Input PPI explains how inflation experienced by the producer on input items is taken forward to the output.
WPI vs PPI
In India, WPI is similar to Output PPI. Both are compiled on the basis of prices received by the producers. The difference lies in the weightage. While in WPI, weights are based on Gross Value of Output (GVO) estimates taken from National Accounts at a broad sectoral level, in Output PPI, the weighting diagram is based on Supply Table of National Accounts.
Input PPI is different from WPI on the concept of price itself. WPI is based on Basic Price while Input PPI is based on the Purchaser’s Price.
Output PPI is compiled on the basis of prices received by the producer. This price is called Basic Price, which does not include Net Tax and Trade and Transport Margin. On the other hand, Input PPI is compiled on the basis of prices paid by the producers to buy input items. This price is called Purchaser’s Price, which includes the Trade and Transport Margin.
Getting rid of double counting
Calculating India’s real, inflation-adjusted manufacturing GDP has always been an exercise in approximation. Since there was no dedicated input price index, National Accounts often used the headline WPI to deflate both factory revenues and input costs. It threw up distorted growth figures during volatile commodity cycles due to double counting. Double counting is the inflationary distortion caused when the price of the same commodity is counted at multiple stages of production within the index. This happens when intermediate goods (input) and final goods (output) are both independently included in the price index.
The new structure avoids one of the longstanding challenges of double counting. Under the PPI framework, Output PPI weights are derived from the Supply Table, while Input PPI weights come from the Use Table. Thus, there will be a coherent system for tracking prices entering production and prices emerging from production.
“The fact that they are providing output and
input separately is critical,” said Gaura Sengupta, Chief Economist at IDFC FIRST Bank. “Under the new GDP methodology, you have a 'double
deflation' method where you separately deflate the revenue side and the input side using their respective deflators.”
“For the private sector, the new system will help us estimate real growth rates for manufacturing significantly better,” Sengupta added.
Under the PPI framework, a commodity such as crude oil will be counted directly and then effectively counted again through petroleum products derived from it, DPIIT said. This will reduce the distortions in figures and produce a more accurate picture of inflation pressures.
Going forward, even if input costs rise sharply while output prices remain stable, producers may absorb the increase through lower profit margins. Conversely, strong pricing power may allow firms to pass higher costs directly to customers. The separate publication of Input and Output PPIs allows analysts to observe those dynamics in real time.
Impact on consumer prices
Producer costs and consumer prices do not always move in sync. At times of global energy shocks, supply chain disruptions and commodity price volatility, the production costs go up sharply.
However, there is no immediate impact on the consumer price.
In such situations, margins rather than prices become the shock absorber. Rajni Thakur reckons that PPI is particularly useful for understanding these developments. “We are already seeing evidence of this dynamic in several sectors where input costs have risen, while retail prices have remained unchanged. In such cases, manufacturers are effectively absorbing the higher costs, which may eventually be reflected in profit margins at a later stage. Therefore, PPI serves as a stronger tool for economic signalling,” said Thakur.
Capturing the services sector
WPI did not just ignore services; it omitted other major sectors like telecommunications and financial logistics. The PPI architecture corrects the anomaly by introducing a dedicated Service PPI. Compiled quarterly, the first phase debuts on June 15 with provisional data for the fourth quarter of 2025-26, supported by a historical back-series from the first quarter of 2023-24.
The first phase leverages administrative data pipelines to track price movements across seven service pillars - banking and management of pension funds, securities transaction and insurance, telecom, railways and air passenger transport. More services will join the basket in subsequent phases.