Wholesale Price Index Vs New Age Construction Industry
1. CONTINENTAL ENGINEERING CORPRATION
By:
Navlesh Kumar, General Manager – Commercial
Arun Soni, Asst. Manager-Contracts
Data Credits: Ajay Tripathi, Sr. Engineer - QSS
EFFECT OF NEWLY INTRODUCED SUBGROUP OF CONSTRUCTION
MACHINERY IN THE REVISED WPI SERIES OF BASE YEAR 2004-05 ON
THE ADJUSTMENT OF CONTRACT PRICE IN MAJOR CONSTRUCTION
CONTRACTS & PROPOSAL
Wholesale Price Index Vs New Age Construction Industry
November 2014
Source: http://eaindustry.nic.in/
The representation of the Subgroup “Construction Machinery” in the latest series of Wholesale Price Index is
to be tuned with the Construction Industry which inter alia has high end equipment, new construction
practices, advanced methodologies etc. There is a dire need for revamping the Subgroup - Construction
Machinery of the WPI Series by way of increasing the representation which currently included only two (2)
equipment in the list.
2. EFFECT OF NEWLY INTRODUCED SUBGROUP OF CONSTRUCTION MACHINERY IN THE
REVISED WPI SERIES OF BASE YEAR 2004-05 ON THE ADJUSTMENT OF CONTRACT
PRICE IN MAJOR CONSTRUCTION CONTRACTS & PROPOSAL
1. BACKGROUND
1.1 For Major Construction Contracts that run for more than a year, the Contract Price is
adjusted to cater for the fluctuation in prices of main constituents (Labour, Material and Plant
& machinery & parts) of the Works by a typical formula given called Price Adjustment
(Escalation) Formula in the Contract.
1.2 The formula as shown below takes account of the percentage variation in whole sale price
index/ rates of major components (Labour, Materials, Fuel & P&M) of the Works and the
value of executed works is adjusted periodically (monthly) by using this formula and
incorporating relevant changes if index /rates.
Page 1 of 11
V = 0.85 x P% x R x (Ci – Co) / Co
Where,
V = Price Adjustment Value of a component (viz Labour, Fuel, Machinery and Material
(Cement, Steel, Bitumen and Other Material) on account of variation in indices /rate of that
component.
P = Percentage for the component, (viz Labour, Fuel, Machinery and Material (Cement,
Steel, Bitumen and Other Material)a s defined in the Contract
R = Value of executed Works [Turnover] for a particular period as arrived by applying
tendered rate/price
Ci = Current wholesale price Index(WPI)/Rate of a particular component for the relevant
period
Co = Base wholesale price index (WPI) /Rate (Indices/rate 28 days prior to the bid
submission date) of the same particular component.
1.3 The components viz. Labour, Fuel, Machinery Cement Steel and Other Materials except
bitumen are common for most of the Construction Projects; however the percentage of
individual component (P) of particular Contract depends upon the type and nature of the
Project.
1.4 The WPI (Wholesale Price Index) measures and tracks the price of a representative basket
of wholesale goods on periodical basis on which the inflation rate is computed. The Office of
Economic Advisor in the department of Industrial Policy and Promotion, Ministry of
Commerce & Industry is responsible for compiling and releasing it.
1.5 The concept of WPI adopted in practice represents the quoted price of bulk transaction
generally at primary level. The compilation of WPI involves defining the concept of WPI,
3. EFFECT OF NEWLY INTRODUCED SUBGROUP OF CONSTRUCTION MACHINERY IN THE
REVISED WPI SERIES OF BASE YEAR 2004-05 ON THE ADJUSTMENT OF CONTRACT
PRICE IN MAJOR CONSTRUCTION CONTRACTS & PROPOSAL
finalization of base year, finalization of item basket, allocation of basket, and allocation of
weights (W) at items, groups / subgroups levels etc.
1.6 The composition of WPI of all commodities consist of 4 levels (i) Major Groups (ii) Groups
(iii) Subgroups (iv) Item. The weightage are allocated from top down methods means
weights are assigned first to Major Groups, then to Groups, Sub groups and the Item.The
detail information about compilation is available on the website of Office of Economic
Advisor of India (www.eaindustry.nic.in).
2. REVISION OF WPI SERIES AND RELEVANT CHANGES
2.1 The WPI is revised roughly once in every decade and during the revision, revision of
weighting diagram and restructuring are done. In the latest revision, base year has been
shifted from year 1993-94 to year 2004-05 and the revised WPI has been made effective
from 14 Sep 2010 with closure of old Index of base Year 1993-94.
2.2 Prior to 14 Sep 2010, the WPI of base year 1993-94 with effect from April 2000 was being
used in formulae of all Construction Contracts for the adjustment of Contract Price on
account of fluctuation in prices of materials (cement, steel & other commodities) and
machinery components of the project works. These were available with categorization and
weightage in following manner:
Page 2 of 11
Table-1
1993-94 Series
Item in WPI WT
Cement 1.73105
Bars & Rods [Steel] 1.24088
Heavy Machinery & Parts 1.82158
All Commodities [Other Material] 100.00
2.3 In the revised Index, addition of many new commodities as well as restructuring has been
done. The major addition of commodities (items) as may be seen from the below table of
WPI compositions, has been done in the manufacturing head wherein 237 items have been
added in the latest index of base Yr 2004-05.
Table-2
Sn Description
WPI of base Yr 1993-94 WPI of base Yr 2004-05
Weight No. of
items Weight No. of
items
1 All Commodities 100 435 100 676
1.2 I Primary Articles 22.02 98 20.12 102
1.3 II Fuel & Power 14.23 19 14.91 19
1.4 III Manufactured Products 63.75 318 64.97 555
4. EFFECT OF NEWLY INTRODUCED SUBGROUP OF CONSTRUCTION MACHINERY IN THE
REVISED WPI SERIES OF BASE YEAR 2004-05 ON THE ADJUSTMENT OF CONTRACT
PRICE IN MAJOR CONSTRUCTION CONTRACTS & PROPOSAL
2.4 As a result of restructuring and addition of new items, change of items/ group, revamping of
structure and reduction of weightage have taken place. The eleven Groups from A to L
(Table-3) that cover entire manufactured products have remained same but there are
changes at level of subgroups and at items/commodity level.
2.5 The three construction items i.e. ‘Cement’, ‘Bars &Rod’ and ‘Heavy Machinery & Parts’ of
old series that were under the Groups of ‘Non-Metallic Mineral Products’, Basic Metal, Alloys
& Metal Products and ‘Machinery& Machine Tools’ respectively have also got affected due
to augmentation and restructuring.
2.6 Earlier Cement was a single item under Subgroup of ‘Cement’ which has become four items
(grey cement, white cement, slag cement & lime) in new Series. Similarly, there is no item of
Bars & Rods in new Series, instead there is an item of Rebar and thus Rebar represents the
item of Bars & Rods.
2.7 Following tables show the composition of Groups of both Series, relevant changes of
Page 3 of 11
components of Price Adjustment Formula in New Series:
Table-3
Description
Old WPI series
(Base Yr 1993-94
New WPI series
(base yr 2004-05)
Weight No. of
items Weight No. of
items
III MANUFACTURED PRODUCTS 63.749 318 64.972 555
(A) FOOD PRODUCTS 11.538 41 9.974 57
(B) BEVERAGES, TOBACCO & TOBACCO
PRODUCTS 1.339 11 1.762 15
(C ) TEXTILES 9.8 29 7.326 55
(D) WOOD & WOOD PRODUCTS 0.173 2 0.587 10
(E ) PAPER & PAPER PRODUCTS 2.044 11 2.034 18
(F) LEATHER & LEATHER PRODUCTS 1.019 1 0.835 13
(G) RUBBER & PLASTIC PRODUCTS 2.388 15 2.987 45
(H) CHEMICALS & CHEMICAL PRODUCTS 11.931 69 12.018 107
(I) NON-METALLIC MINERAL PRODUCTS 2.516 9 2.556 29
(J) BASIC METALS, ALLOYS & METAL
PRODUCTS 8.342 53 10.748 69
(K) MACHINERY & MACHINE TOOLS 8.363 56 8.931 107
(L) TRANSPORT, EQUIPMENT & PARTS 4.295 21 5.213 33
5. EFFECT OF NEWLY INTRODUCED SUBGROUP OF CONSTRUCTION MACHINERY IN THE
REVISED WPI SERIES OF BASE YEAR 2004-05 ON THE ADJUSTMENT OF CONTRACT
PRICE IN MAJOR CONSTRUCTION CONTRACTS & PROPOSAL
Page 4 of 11
Relevant changes in CEMENT and REBAR items:
Table-4
WPI 1993-94 Series WPI 2004-05 Series
III. MANUFACTURED PRODUCTS III. MANUFACTURED PRODUCTS
(I) NON-METALLIC MINERAL PRODUCTS (I) NON-METALLIC MINERAL PRODUCTS
(c) Cement (c) Cement & Lime
Cement Grey cement
White cement
Slag cement
Lime
(J) BASIC METALS, ALLOYS & METAL
PRODUCTS (J) BASIC METALS, ALLOYS & METAL
PRODUCTS
a. Basic Metals & Alloys a. FERROUS METALS
a1. Iron & Steel
Basic pig iron a2. STEEL: LONG
Foundry pig iron Rebars
Steel ingots(plain carbon) Rounds
Blooms Wire Rods
Billets & slabs Angles
Skelps Joist & Beams
Oromild steel &tensil plate Rails
Angles,channels & sections
Joist & rolls
Bars & rods
Relevant change in MACHINERY item:
Table-5
WPI 1993-94 Series WPI 2004-05 Series
(K) MACHINERY & MACHINE TOOLS (K) MACHINERY & MACHINE TOOLS
a. Non-Electrical Machinery & Parts 3.3787 a. Agriculture Machinery & Implements
a1. Heavy Machinery & Parts 1.8216 b. Industrial Machinery 1.83759
Complete tractor 0.7276 Boiler & Accessories 0.2527
Agriculture Implements 0.0687 Industrial Furnaces 0.0225
Tractor Components &Acces. 0.0510 Coupling 0.0100
Material Handling Equipment 0.0783 Filtration Equipment 0.0182
Cranes 0.0506 Material Handling Equipments 0.0507
Boilers, its parts & accessories 0.1806 Textile Machinery 0.1509
Complete Engines 0.5119 Rubber Machinery 0.0124
Excavator 0.1064 Cranes 0.0465
Hydraulic Machine 0.0465 Lifts 0.0478
a2. Industrial Machinery for Textile etc 0.5680 Oil Mill Machinery 0.0103
a3. Refrigeration & Other Non-
Electrical Machinery 0.9891 Rice Mill Machinery 0.0121
b Electrical Machinery 4.9845 Sugar Machinery 0.0347
Food/ Beverages/Tobacco
Processing Machinery 0.0056
Mining/Quarrying/Metallurgical 0.0386
6. EFFECT OF NEWLY INTRODUCED SUBGROUP OF CONSTRUCTION MACHINERY IN THE
REVISED WPI SERIES OF BASE YEAR 2004-05 ON THE ADJUSTMENT OF CONTRACT
PRICE IN MAJOR CONSTRUCTION CONTRACTS & PROPOSAL
Page 5 of 11
WPI 1993-94 Series WPI 2004-05 Series
(K) MACHINERY & MACHINE TOOLS (K) MACHINERY & MACHINE TOOLS
Machinery/Parts
Plastic Machinery 0.0823
Fasteners 0.0564
Ball/Roller Bearing 0.1777
Pump & Assembly 0.1024
Drive Equipment 0.0065
Heat Exchanger 0.0810
Hydraulic Equipment 0.0450
Pneumatic Tools 0.0076
Industrial Valves 0.1561
Chemical Plant Equipments 0.1484
Other Industrial Machinery 0.2612
c. Construction Machinery 0.04487
Loader 0.01029
Concrete Vibrator & Mixture 0.01260
Other Construction Machinery /
Equipment 0.02198
d. Machine tools 0.36702
e. Air conditioner & Refrigerators 0.42879
f. Non electrical machinery 1.02563
g. Electrical machinery 2.34277
h. Electrical Accessories, Wires,
Cables 1.06278
i. Electrical Apparatus & Appliances 0.33666
j. Electrical Items 0.96117
k. IT Hardwares 0.26700
l. Communication equipments 0.11821
Summary of relevant changes of components of Price Adjustment Formula of the
Construction Projects and Contracts in the New Series:
Table-6
Item in WPI (1993-94 Series) Item in WPI (2004-05 Series)
Cement Grey Cement
Bars & Rods Rebars
Heavy Machinery & Parts Construction Machinery
All Commodities All Commodities
2.8 The major change is found in case of machinery component. Earlier, the WPI of ‘Heavy
Machinery & parts’ with weightage of 1.82, covering a particular group of machineries and
falling under Group of ‘Machinery & Machinery Tools’ was usually used in the price
adjustment formula. However, as a result of restructuring in New Series, Subgroup of ‘Heavy
Machinery & parts’ has been got deleted from the Group of ‘Machinery & Machinery Tools’.
7. EFFECT OF NEWLY INTRODUCED SUBGROUP OF CONSTRUCTION MACHINERY IN THE
REVISED WPI SERIES OF BASE YEAR 2004-05 ON THE ADJUSTMENT OF CONTRACT
PRICE IN MAJOR CONSTRUCTION CONTRACTS & PROPOSAL
2.9 In the new series, the Group of ‘Machinery &Machinery tools’ consists of twelve Subgroups
and most relevant replacement of ‘Heavy Machinery & tools” could be considered as two
Subgroups i.e. ‘Industrial Machinery’ and ‘Construct Machinery’.
2.10 On the basis of weightage as well as coverage of machineries ‘Industrial machinery’ well
qualifies as a replacement of ‘Heavy Machinery & Parts, however on the basis of pure
terminology, it is ‘Construction Machinery’.
3. IMPACT OF RELEVANT CHANGES ON PRICE ADJUSTMENT FORMULAE OF
CONSTRUCTION CONTRACT
3.1 As far as cement, and bar& rods of old series are concerned, these can be represented as
Grey cement and Rebars of new series respectively. Though weightage of these have mildly
come down but each being a specific item, replaced items shall continue to make movement
of indices depending upon price fluctuations& transactions.
3.2 In case of machineries, it is appreciable that a Subgroup of ‘Construction Machinery’ to
represent the wholesale price fluctuation of machineries and parts specifically for
Construction has been created and thus, obvious choice as a replacement of ‘Heavy
Machinery& parts of old series, should be the Subgroup of ‘Construction Machinery’.
3.3 However, when one sees the coverage (representation to the Construction Industry) of
machineries and the weightage, a great variance in comparison to old series is appeared.
Otherwise as well, the Subgroup of Construction Machinery due to presence of nominal and
light machinery items beneath it cannot act as a true representative of machineries that are
being commonly used for Construction Projects’.
3.4 First, comparing with old series, there were nine heavy items under the subhead of ‘Heavy
machinery & parts’ with combine weightage of 1.82 as may be seen from Table-5, whereas
in ‘Construction Machinery’, there are three light items naming ‘Loader’, Concrete Vibrator &
Mixture and ‘Other construction machinery/equipment’ with combine weightage of 0.04.
Thus, Subgroup of Construction Machinery in New Series is neither true replacement of
Heavy machinery & parts of old series nor representing machineries that are commonly
used for the construction projects.
3.5 Unlike, Rebars & Grey Cement which are individual / single commodity, and their rise and
fall of WPI indices are purely dependent upon market economics, Construction Machinery
represents as a group of machineries/ commodity and thus proper coverage of machineries
is an essential requirement to make the indices true representative to the Construction
Contracts.
3.6 The major machineries that are commonly used in all types of construction projects
(Building, Industrial, Highway& Bridges, MRTS (Metro), Hydropower, Refinery &
Petrochemical) and are essentially required to be considered to make truly representative
basket of Construction Machinery are as below:
Page 6 of 11
8. EFFECT OF NEWLY INTRODUCED SUBGROUP OF CONSTRUCTION MACHINERY IN THE
REVISED WPI SERIES OF BASE YEAR 2004-05 ON THE ADJUSTMENT OF CONTRACT
PRICE IN MAJOR CONSTRUCTION CONTRACTS & PROPOSAL
Page 7 of 11
1. Hydraulic Excavator
2. Dozer
3. Wheel Loader
4. Dumpers
5. Compactors
6. Tractor Trailors
7. Slip form concrete shutter
8. Batching Plants
9. Mixers
10. Concrete Pumps
11. Transit Mixers
12. Concrete Placers
13. Hydraulic Piling Rigs
14. Cranes
15. Lifting tools & tackles
16. Dewatering Pumps
17. Compressors
18. Generators
19. Transformers
20. Rectifiers
21. Submerged Arc Welding Unit
22. Rebar Cutting & Bending machine
3.7 In comparison of above listed machineries commonly used for all type of construction
projects, the machineries chosen under the Subgroup of ‘Construction Machinery’ are
insignificant and cannot act as representative for the Construction Projects where heavy
machineries and state of art machineries are being utilized for speedy, highly technical and
complex construction
3.8 In the past decades, the usage of heavy and highly complex hydraulic machinery such as
Earth Movers, Pavers, Batching Plants, WMM Plants, HM Plants, Gantry Crane, various
types & capacity Cranes, Crushers, Tunnel Boring Machine, Piling Ring, Dipharm wall rig
etc. is widely seen and with passage of time, more and more advanced machineries shall be
used. In such condition, a truly representative basket for Construction Machinery is required
rather present one which is just notional and does not serve the purpose for measuring the
price fluctuation of construction industry machineries.
3.9 For best representation, the above machineries should be included in the future WPI series,
and which will be applicable for future Projects. However, for maintaining continuity with
future (revamped) WPI series, currently for the running Projects a new representation is
designed for Construction Machinery based on the available commodities in current WPI
series and which are representing the Construction Projects (Industry).
While designing the new basket (subgroup) for the Construction Machinery the major focus
was on representation of set of machinery and equipment. The new sets of machinery
proposed to be included in Construction Machinery are,
Table-7
Commodity Weightage
Construction Machinery 1.73727
Material Handling Equipment 0.05072
Cranes 0.04647
Mining/Quarrying/Metallurgical Machinery/Parts 0.03860
Pump & Assembly 0.10241
Hydraulic Equipment 0.04504
Pneumatic Tools / Compressor 0.00763
Loader 0.01029
Concrete Vibrator & Mixture 0.01260
Earth Moving Machinery 0.19193
9. EFFECT OF NEWLY INTRODUCED SUBGROUP OF CONSTRUCTION MACHINERY IN THE
REVISED WPI SERIES OF BASE YEAR 2004-05 ON THE ADJUSTMENT OF CONTRACT
PRICE IN MAJOR CONSTRUCTION CONTRACTS & PROPOSAL
2009 2010 2011 2012 2013 2014
All Commodities Manufactured Products
Machinery & Machine Tools Industrial Machinery
Construction Machinery (Original) Construction Machinery (New Basket)
Page 8 of 11
Tractors 0.40572
Auto Parts 0.80388
Other Construction Machinery / Equipment 0.02198
3.10 With the newly designed Construction Machinery basket, a small study is done citing the
historic (last five years) index number for comparison and further analysis and proposal.
3.11 It may also be observed from given below graph and table that Subgroup of WPI
‘Construction Machinery’ (original) has not shown changes in last 5 five years. It is very
surprised to see that when prices of all other (manufactured) commodities are going up, WPI
of ‘Construction Machinery’ has risen mere 7.61%, lowest among peer group and against
the overall inflation of 42.69% in the last five years.
190.00
170.00
150.00
130.00
110.00
The growth pattern of the new basket for Construction Machinery is consistent and representation
of the market scenario.
The design of new basket for Construction Machinery gives a steady growth of 15% which is
representing the market and is very close to the Industrial Machinery.
Table-8
Trend of WPI in past five years
Commodity Name Weightage
2009 2010 2011 2012 2013 2014
All Commodities 100.0000 0% 9.56% 19.94% 28.98% 37.14% 42.69%
Manufactured Products 64.97164 0% 5.42% 13.21% 19.69% 23.66% 27.55%
Machinery & Machine
Tools 8.93148 0% 2.19% 5.48% 8.35% 11.07% 13.72%
Industrial Machinery 1.83759 0% 5.70% 8.94% 11.76% 14.79% 16.99%
Construction Machinery
(Original) 0.04487 0% 1.32% 1.23% 3.52% 5.26% 7.61%
Construction Machinery
(New Basket) 1.73727 0% 2.02% 6.28% 9.28% 12.12% 15.11%
10. EFFECT OF NEWLY INTRODUCED SUBGROUP OF CONSTRUCTION MACHINERY IN THE
REVISED WPI SERIES OF BASE YEAR 2004-05 ON THE ADJUSTMENT OF CONTRACT
PRICE IN MAJOR CONSTRUCTION CONTRACTS & PROPOSAL
Percentage increase of index number is demonstrated and is shown for last five years only,
considering 2009 as base year. For 2014 average of monthly index from January ’14 to October ’14 is
considered.
Construction Machinery’s close cousin Industrial Machinery also shows that there is steady growth
of 17%. The Index no. for both Construction Machinery and Industrial Machinery was 129.9 in 2009,
but it has grown marginally up to 151.5 for Industrial Machinery whereas it has reached up to 138.8
only for Construction Machinery. Also, the group head i.e. (K) MACHINE & MACHINE TOOLS
have also grown 13% representing the whole group steadily.
The major motive for all this discussion arose due to low realization of price adjustment (escalation)
payments since the revision of the WPI series with base year 2004-05. Impact for such an
increment should also be seen in terms of financials too.
Project Cost = Rs. 300 Crs.
Time for Completion = 3 years
Percentage for Plant & Machinery component = 15%.
∴ Per cost against Plant & Machinery = (Rs. 300 Crs x 15%) / 3 = Rs. 15 Crs.
Also, per year Price Adjustment (Escalation) will be calculated based on the percentages arrived at
in the above Table which is based on the new WPI series.
Table-9
All amounts below are in Rs. Crs.
Commodity Name Weightage Total Price
2012 2013 2014 Adjustment
Machinery & Machine Tools 8.93148 1.25* 1.66 2.06 6.81
Industrial Machinery 1.83759 1.76 2.22 2.55 6.58
Construction Machinery (Original) 0.04487 0.53 0.79 1.14 2.83
Construction Machinery (New Basket) 1.73727 1.39 1.82 2.27 5.48
‘* Sample Calc., for Machinery & Machine Tools, Year 2012 = 8.35% of [(300 x 15%) / 3] = 1.25
It is seen that, considering the available indices for Construction Machinery average escalation
(Price Adjustment) amount for a 300 Crs-3 years project would be Rs. 2.83 Crs only whereas,
“Industrial Machinery” and the Group Commodity “Machinery & Machine Tools” both are above Rs.
6.5 Crs. Thus it is imperative to look towards redesign of Construction Machinery which as per our
design and proposal is yielding escalation of Rs. 5.48 Crs and is quite representing the Group
Commodity and the closest cousin “Industrial Machinery”
For comparison of growth of the group commodity of WPI vis-à-vis true market scenario, there are
two major dependent factors viz. (a) representation of the group and revision of the index numbers
of the group’s individual commodities, and (b) price movement of the individual commodities of the
group.
Page 9 of 11
11. EFFECT OF NEWLY INTRODUCED SUBGROUP OF CONSTRUCTION MACHINERY IN THE
REVISED WPI SERIES OF BASE YEAR 2004-05 ON THE ADJUSTMENT OF CONTRACT
PRICE IN MAJOR CONSTRUCTION CONTRACTS & PROPOSAL
As per WPI Compilation Manual, Point No. 4.1.1,
“At present data collection for WPI is solely based on voluntary basis……. Since the collection of
prices is on voluntary basis, the flow of price data, especially from manufacturing units, becomes
irregular leading to problems in compilation of WPI.”
From the above, following position is arrived at,
1. Even if the current Construction Machinery group is seen as a true market representation then
also a practical problem persist viz. ‘Data Collection’. Data collection is done on voluntary basis
thus the sources are not fixed and regular leading to compilation of WPI. Thus true
representation to market is not seen.
2. The components of the Construction Machinery group i.e. Loader, Concrete Vibrator and Other
Construction Machinery are partially representing the Construction Industry. The price
movement of the aforesaid machineries is also very limited. For example Concrete Vibrator is
not a high end equipment of Construction Industry and cannot be compared with rate of
procurement, usage and requirement and in short the price movement of cranes, batching plant,
dumpers, excavators etc. in a similar project.
3. Thus for representing a true market scenario the commodities in the group should represent the
true market scenario and the price movement of the commodities should be regular and
accurate.
The crux of such discussion lies towards the representation of group commodity Construction
Machinery and its low inflation trend resulting in low price adjustment payments to the executors of
the multi crore Projects. It is obvious that with high end projects, the Contractors would be using
highly technological and complex machines and equipment for a working period of 24-48 months
and with such weightage and growth in index numbers, thereto, they would be getting very low
compensation in terms of Price Adjustment after deploying expensive set of machinery and
equipment.
4. RECOMMENDATION / CONCLUSION
Above points are laid in view of immediate action as well as a permanent solution by revisions in
the WPI series in future. For sake of understanding and a clear motive for all such analysis, the
recommendation is further split,
Therefore, the pattern of recommendation (priority – top being most convenient) is also to be drawn
practically such as,
I. FOR RUNNING CONTRACTS (existing projects with various departments like PWD, CPWD,
NHAI etc.), the price adjustment computation can be done following,
a) Index numbers for Industrial Machinery (Weightage – 1.83759): In the current WPI series, the
Subgroup Industrial Machinery is very common with Construction Machinery and has many elements
(commodities) which are very commonly used in Construction Projects (viz. Material Handling
Page 10 of 11
12. EFFECT OF NEWLY INTRODUCED SUBGROUP OF CONSTRUCTION MACHINERY IN THE
REVISED WPI SERIES OF BASE YEAR 2004-05 ON THE ADJUSTMENT OF CONTRACT
PRICE IN MAJOR CONSTRUCTION CONTRACTS & PROPOSAL
Equipment, Cranes, Mining/Quarrying etc., Pump & Assembly, etc.). And the biggest convenience is
that it is readily available in the current WPI series and is regularly published with other commodities.
b) Index numbers for proposed basket for Construction Machinery (Weightage – 2.015145): The
newly designed basket for Construction Machinery referred under Pt. No. 3.9 is hereby proposed as a
second option for Running Projects. This new basket for Construction Machinery is very close
representation of new age Construction projects and specifically this basket is designed from the
available commodities of current WPI series, by which the applicability would be transparent.
c) Index numbers for Group Commodity Machinery & Machine Tools (Weightage – 8.93148): If the
above two options are not found suitable as a replacement for existing Subgroup “Construction
Machinery” then the Group Head commodity i.e. Machinery and Machine Tools which is obviously
representation for Construction Machinery on a macro scale and is relevant too.
II. FOR FUTURE CONTRACTS, the price adjustment computation can be done following,
Index numbers for proposed basket for Construction Machinery (Weightage – 2.015145): The newly
designed basket for Construction Machinery referred under Pt. No. 3.9 is hereby proposed as an only
option for Future Projects. This new basket for Construction Machinery is very close representation of
new age Construction projects and specifically this basket is designed from the available commodities of
current WPI series, by which the applicability would be transparent.
III. FOR UPCOMING SERIES OF WPI by the Office of Economic Advisor (Ministry of
Commerce & Industry)
a) Revamping of complete representation of Construction Machinery with including the machineries
suggested in Pt No. 3.6 of this document. This will revolutionize the representation, weightage and
index growth for the Construction Machinery and thus will a steady increase in indices in sync with
the Construction Projects / Industry.
b) Or, The basket proposed basket for Construction Machinery (Weightage – 2.015145): The newly
designed basket for Construction Machinery referred under Pt. No. 3.9 to be an option for future
series as well. This new basket for Construction Machinery is very close representation of new age
Construction projects.
Therefore, the proposal for designing / revision of the basket for Contraction Machinery is
imperative and is hereby proposed to.
Page 11 of 11
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