After more than two decades of development, India's Producer Price Index (PPI) was finally unveiled on June 15, marking the culmination of a project that began with the Abhijit Sen Working Group's feasibility study in 2003. As reported by Business Standard, the launch represents a set of measures designed for different parts of the price chain, including the output PPI for goods tracking factory-gate prices, a trial input PPI for goods capturing manufacturer input costs on an experimental basis, and a quarterly services PPI initially covering seven sectors. The WPI itself received an expanded basket of 957 items, up from 697, with solar, wind and nuclear electricity among the newer additions, and will continue alongside the PPI for five years to provide a bridge between the old and new price index systems.
The statistics ministry is implementing a significant shift in GDP calculation methodology, moving from the Wholesale Price Index (WPI) to the output Producer Price Index (PPI) as the deflator for item groups where output is collected in value terms. According to reports from Business Standard, this change follows the latest Index of Industrial Production (IIP) data set released on June 29, which marked the official transition to the output PPI deflator. The move represents a fundamental change in how India calculates its GDP, affecting both current and historical data revisions. The PPI has already started feeding into the IIP within a fortnight of launch, with the statistics ministry now preparing to extend its use to real GDP calculations through the deflator that strips price effects out of headline growth.
The statistics ministry is set to release revised real GDP estimates for previous years using the output PPI as the deflator on August 31, alongside the national accounts data for the April-June quarter of FY27. As reported by Business Standard, one official confirmed that "the first quarterly GDP data for FY27 will be based on the output PPI. The estimates released for 2022-23, 2023-24 and 2024-25 will change for the constant-price estimates because we are now supposed to include the PPI. The revised series will be released in August." The calculations are currently underway to ensure proper implementation of this methodological change. Early evidence from the IIP suggests that industrial-output growth for one recent year was trimmed by about 130 basis points under the PPI-based methodology, while the most recent year remained broadly unchanged.
The transition builds upon the Department for Promotion of Industry and Internal Trade (DPIIT) unveiling India's first PPI framework on June 15, comprising the output PPI, input PPI and services PPI. According to Business Standard, Mospi Secretary Saurabh Garg confirmed in an interview on June 9 that the ministry would eventually replace the WPI with the PPI, though he did not specify a specific timeline. The logjam was finally broken on December 30, 2024, when the government set up an 18-member working group under NITI Aayog member Ramesh Chand with a mandate to finalise both the revised WPI basket and the methodology for the new PPI suite. N R Bhanumurthy, director of the Madras School of Economics, noted that "the demand for PPI as a measure of inflation in the country has been there for a long time, starting almost 15-20 years back with the Abhijit Sen committee being formed," highlighting the long-standing demand for this comprehensive price measurement system.
An analysis of annual IIP growth under the two deflator methodologies showed that while FY26 growth remained unchanged, FY25 IIP growth was revised down sharply, from 6.4 per cent under the WPI deflator to 5.7 per cent under the output PPI. As reported by Business Standard, economists suggest the shift in deflator from WPI to PPI is unlikely to have a significant impact on GDP calculations. Gaura Sengupta, chief economist at IDFC First Bank, explained that "the impact on GDP would be limited because only a small share of manufacturing gross value added (GVA) is derived from the IIP." Pronab Sen, former chief statistician for the Government of India, also indicated that the impact on GDP would be muted, describing the IIP as "a forward-looking indicator" whose primary value lies in tracking changes over time rather than serving as a historical benchmark.
The new PPI framework addresses limitations in India's previous statistical approach by measuring price build-up from the production side to the consumption side, something the WPI and CPI were never designed to capture. According to Business Standard, Bhanumurthy suggests that once the PPI stabilises, there may be a case for examining whether it should sit alongside the CPI in the Reserve Bank of India's analytical framework. The comprehensive nature of the PPI suite, covering goods, inputs and services, provides a more complete picture of price movements throughout the economic system. The speed with which the PPI has begun reshaping India's statistical system is striking, considering the two decades of development and the immediate impact on key economic indicators like GDP and industrial output growth measurements.
