FinMin nudges ministries to switch to PPI for contracts

The finance ministry has asked all ministries and departments to use the Producer Price Index (PPI) instead of the Wholesale Price Index (WPI) for price escalation clauses in future government contracts. The Department of Expenditure issued a memorandum on July 13 urging the switch, citing PPI's greater international acceptance.

The commerce ministry began publishing monthly PPI data for goods and services in June, aligning with International Monetary Fund recommendations. The move paves the way for phasing out WPI over five years. PPI better reflects price movements at the producer level. The output PPI for goods gives the highest weight to manufactured items (69.93%), followed by agriculture, forestry and fishing. Seven services are covered in the first phase, with more to follow.