Finance Ministry Advises Shift From WPI To PPI For Government Procurement Contracts

New Delhi, Aug 17 (KNN) The Finance Ministry has advised ministries and departments to adopt the Producer Price Index (PPI) instead of the Wholesale Price Index (WPI) for price escalation and rate adjustment clauses in future government procurement contracts.

The Department of Expenditure, in an office memorandum dated July 13, said PPI is more internationally accepted and reflects price movements at the producer level more effectively than WPI.

The department has encouraged ministries and departments to shift to PPI in price escalation clauses once adequate PPI data becomes available, reported PTI.

Monthly PPI Data Introduced

The Commerce Ministry began releasing monthly PPI data for goods and services from June, marking the first time India has published such data on a regular basis.

The move is part of a broader plan to transition from WPI to PPI over the next five years and follows recommendations from the International Monetary Fund (IMF) for India to adopt a producer-level price index.

Price escalation clauses allow payments under government contracts to be adjusted in response to changes in key input costs such as materials, labour and fuel. The mechanism helps distribute inflation-related cost changes between contractors and the government during project execution.

Manufacturing Gets Highest Weight In Goods PPI

The output PPI for goods covers representative goods traded in the economy. Manufactured products account for 69.93 percent of the index weight, followed by agriculture, forestry and fishing at 22.16 percent, electricity at 4.49 percent, and mining and quarrying at 3.42 percent.

The first phase of the Services PPI covers seven segments, banking, securities transactions, insurance, pension fund management, railways, air passenger services and telecommunications.

The Commerce Ministry said additional services would be brought under the index in the next phase.

No weights have currently been assigned to the Services PPI as the seven services covered in the initial phase do not represent the entire services sector.

(KNN Bureau)