India has for long grappled with the difficulties of accurately measuring inflation. It’s a large and diverse country that finds it hard to devise a single measure that captures the reality. So for at least the last ten years it’s been trying to move to a purchase price index (PPI) to replace the wholesale price index (WPI), which has far too many problems. The main issue with WPI is the absence of services. So it was announced in December 2023 that India would make the transition, during which both indices would be used.

Last week the government set up a committee to suggest ways of improving the wholesale price index by changing the base year from 2011-12 to 2022-23 and to devise a way of moving to a PPI. This committee will have 18 members — and it will have 18 months to submit its recommendations. But even if the committee were to submit its report by the end of this month, rather than in 18 months, the index would be behind by two years. In fact it’s not very clear why so much time is needed when most of the groundwork has already been done. A previous committee, the Goldar Committee — with no less than 26 members — had gone into this very issue seven years ago. It produced a comprehensive report, which could be the starting point for this new Committee. It would make little sense to start all over again, after inexplicably taking no action on the Goldar Committee’s report.

A PPI measures price change from the perspective of the seller by examining the average change in prices received by producers for domestically produced goods, services, and construction and includes prices from the first commercial transaction. The WPI measures the price change of a basket of goods, but the PPI measures the average price change received by the producer. Two major advantages of the PPI are that it includes services and curbs multiple counting. It is also more granular and stable. It gives a much better picture of the rates of price changes thus making for better policy, particularly for the Reserve Bank of India. It’s the difference between a broad approach to price change and a focused one. Above all, it provides a better GDP deflator. Most of the G20 countries already use PPI.

But the transition will not be an easy one. To begin with there’s the problem of data collection. Distinguishing between the prices of services at the intermediate and final level will prove challenging. The exercise will also need IT systems that can handle the inputs. That will cost a lot. And, quite apart from the lack of expertise and the usual bureaucratic lethargy, firms will be reluctant to provide data. Regardless, therefore, of what all the latest committee recommends, the outcome will depend on how single-mindedly the government pursues the objective of changing over to a PPI from the WPI. If the past is an indication, we will have to keep praying that the switchover happens sooner than later.