Govt to replace WPI with Producer Price Index for future procurement contracts

New Delhi: The Centre is preparing to replace the Wholesale Price Index (WPI) with the Producer Price Index (PPI) for price escalation and price adjustment clauses in future government procurement contracts, aligning India's contracting framework with globally accepted inflation benchmarks, people familiar with the development said.

WPI has long been used as the reference index for adjusting payments in infrastructure, engineering and other long-term public procurement contracts.

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The transition is expected to have implications for government procurement across sectors, including roads, railways, defence, power, and other capital-intensive projects where contracts typically contain price variation clauses to account for inflation over their execution period.

"We have already asked ministries and departments to prepare for the adoption of the PPI in price escalation clauses of future government procurement contracts," a senior official told ET.

The Department of Expenditure advised ministries to use the PPI in place of the WPI for future contracts in an email communication dated July 10.

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The change would apply prospectively to new contracts. Existing contracts linked to the WPI are not expected to be affected, the official added.

This will mark the first implementation step towards shifting away from the Wholesale Price Index (WPI) in public contracting.

On June15 India introduced a new Producer Price Index alongside a revised WPI series as part of a broader overhaul of India's inflation measurement framework.

The PPI is seen as providing a more realistic assessment of inflationary trends in the economy.