Who among the following was the Chairman of the Working Group for determining the methodology for construction of Producer Price Index (PPI) in India (2014)?

Correct — D, (d) B. N. Goldar. The Working Group to determine the methodology for constructing a Producer Price Index in India was set up on 21 August 2014 by the Office of the Economic Adviser in the Department of Industrial Policy and Promotion, Ministry of Commerce and Industry, under the chairmanship of Prof. B. N. Goldar.

The group drew its members from across the statistical system — the Ministry of Finance, the Central Statistics Office, the Ministries of Agriculture, Consumer Affairs and Commerce, the Central Board of Excise and Customs, the Reserve Bank of India and outside experts — because a producer price index touches every one of them. It reported in August 2017, after the date of this paper, so at the time a candidate sat this examination India still had no live PPI and the group's work was in progress.

Why the exercise mattered is the part worth carrying away. India's producer-side inflation measure has been the Wholesale Price Index, which tracks the prices of goods transacted at the wholesale stage. Two things are wrong with that as a measure of what producers receive. First, the same commodity is counted again at each stage it passes through, so a rise in the price of steel shows up in the index through steel, through steel tubes and through the machine made from them — the multiple-counting problem. Second, the WPI covers goods only, and leaves out services entirely, in an economy where services generate the larger share of output. A Producer Price Index is built to measure the average change in prices received by domestic producers for their output, is compiled on a stage-of-processing or value-added framework that avoids the double count, and can be extended to services. That is why international statistical practice has moved to the PPI, and why the Government set a working group to design one.

The chain of committees is itself a useful thing to hold. The earlier Working Group under Dr. Saumitra Chaudhuri, constituted in March 2012 and reporting in March 2014, was asked to revise the WPI base and to prepare for a Producer Price Index and a Business Service Price Index; the Goldar group of August 2014 was the follow-on that had to work out how a PPI would actually be built. The two are commonly confused, and this item is designed around exactly that confusion.

Why the others are wrong

• (a)Saumitra Chaudhury — Dr. Saumitra Chaudhuri is the most tempting name on the list and the one an informed candidate is most likely to mark, because he chaired the neighbouring exercise. The Working Group he headed was constituted in March 2012 and submitted its technical report in March 2014; its terms of reference covered choosing a base year and preparing new official series of the Wholesale Price Index, the Producer Price Index and the Business Service Price Index, and the 2011-12 base WPI series it recommended came into use in 2017. So he is associated with the PPI project, but through the earlier and broader working group, not the 2014 group on PPI methodology named in the stem. Note that the stem prints the year '(2014)' immediately before the question mark, and that bracket is the discriminator between the two groups.
• (b)D. V. Subbarao — This is the name of the economist who served as Governor of the Reserve Bank of India from 2008 to 2013 — Duvvuri Subbarao, who signs as D. Subbarao — and his period in office is remembered for the response to the global financial crisis and for the debate on inflation and growth, not for index-number methodology. A Governor of the central bank would in any case be an unlikely chair for a technical working group of the Office of the Economic Adviser, which sits in the Ministry of Commerce and Industry; the Reserve Bank was represented on the group, but it did not lead it.
• (c)Abhijit Sen — Prof. Abhijit Sen was an agricultural economist who served as a Member of the Planning Commission and earlier as Chairman of the Commission for Agricultural Costs and Prices, and his committee work is associated with agricultural prices, procurement and food policy. That is adjacent territory — agricultural prices are a large part of any producer price index — but it is not the same assignment. The option is placed here to catch a candidate who remembers a well-known economist connected with prices and stops there.

India measures price change with several different instruments, and the questions turn on knowing what each one measures. The Consumer Price Index measures prices paid by households and is the headline measure for monetary policy. The Wholesale Price Index measures prices of goods transacted at the wholesale stage; it covers goods only, and because a commodity re-enters the index at successive stages of processing it suffers from multiple counting. A Producer Price Index measures the average change in prices received by domestic producers for their output, is organised so that the same output is not counted twice, and can be extended to services through a Business Service Price Index. The move from a WPI to a PPI is the direction international statistical practice has taken, and India's preparation for it ran through two working groups: the group chaired by Dr. Saumitra Chaudhuri, constituted in March 2012 and reporting in March 2014, whose terms of reference included the WPI base revision along with the PPI and the Business Service Price Index; and the group chaired by Prof. B. N. Goldar, constituted on 21 August 2014 by the Office of the Economic Adviser, charged specifically with the methodology of the PPI, which reported in August 2017.

Key facts

• The Working Group on the methodology for a Producer Price Index in India was chaired by Prof. B. N. Goldar.
• It was constituted on 21 August 2014 by the Office of the Economic Adviser, Department of Industrial Policy and Promotion, Ministry of Commerce and Industry.
• Its members were drawn from the Ministry of Finance, the Central Statistics Office, the Ministries of Agriculture, Consumer Affairs and Commerce, the Central Board of Excise and Customs, the Reserve Bank of India, and outside experts.
• The group submitted its report in August 2017; India had no live Producer Price Index when this paper was set.
• A Producer Price Index measures the average change in prices received by domestic producers for their output.
• The Wholesale Price Index covers goods only and suffers from multiple counting, since a commodity re-enters the index at each stage of processing.
• The earlier Working Group under Dr. Saumitra Chaudhuri was constituted in March 2012 and reported in March 2014, covering the WPI base revision along with the PPI and the Business Service Price Index.
• The 2011-12 base WPI series recommended by that group replaced the 2004-05 base series in 2017.

Common traps

• Marking Saumitra Chaudhuri because he chaired the earlier working group whose remit also mentioned the PPI; the year in brackets is what separates the two.
• Assuming a price-index committee must be chaired by a Reserve Bank official; the Office of the Economic Adviser sits in the Ministry of Commerce and Industry.
• Believing India already had a PPI in 2017; the methodology group had not yet reported.
• Treating the WPI as India's producer price index; it measures wholesale transaction prices of goods, and multiple-counts across stages of processing.

• practice — not a real PYQ

  Which one of the following best states the difference between a Producer Price Index and the Wholesale Price Index as compiled in India?

  • (a)The Producer Price Index measures the average change in prices received by domestic producers for their output, while the Wholesale Price Index measures prices of goods at the wholesale stage and is subject to multiple counting
  • (b)The Producer Price Index covers only imported goods, while the Wholesale Price Index covers only exported goods
  • (c)The Wholesale Price Index covers services, while the Producer Price Index is restricted to goods
  • (d)The Producer Price Index is compiled once a year, while the Wholesale Price Index is compiled every month

  Answer(a) The Producer Price Index measures the average change in prices received by domestic producers for their output, while the Wholesale Price Index measures prices of goods at the wholesale stage and is subject to multiple counting

• practice — not a real PYQ

  The Working Group whose terms of reference covered the base revision of the Wholesale Price Index along with a Producer Price Index and a Business Service Price Index, and which submitted its technical report in March 2014, was chaired by

  • (a)B. N. Goldar
  • (b)Saumitra Chaudhuri
  • (c)Abhijit Sen
  • (d)D. Subbarao

  Answer(b) Saumitra Chaudhuri