The document discusses the effect of changes made to the Wholesale Price Index (WPI) series in India, including the introduction of new subgroups. Specifically, it notes that the representation of "Construction Machinery" in the revised WPI covers only three insignificant equipment items, which does not appropriately reflect price changes in the construction industry. The document recommends revamping the Construction Machinery subgroup to include more common construction equipment, in order to better compensate contractors for price rises through contract adjustment formulas that reference the WPI.

1. CONTINENTAL ENGINEERING CORPRATION
EFFECT OF NEWLY INTRODUCED SUBGROUP OF CONSTRUCTION
MACHINERY IN REVISEDWPI SERIES OF BASE YEAR 2004-05 ON THE
ADJUSTMENT OF CONTRACT PRICE IN MAJOR CONSTRUCTION
CONTRACTS AND RECOMMENDATIONS FOR THE REMEDY AND
IMPROVEMENT
Machinery Items covered under WPI of Construction Machinery Vs Actual machinery used for
Construction Industry
November 2014
Source: http://eaindustry.nic.in/
By:
Navlesh Kumar, General Manager (Commercial)
Arun Soni, Asst. Manager (Contracts)
Data Credits: Ajay Tripathi, Sr. Engineer - QSS

2. Effect of newly introduced Subgroup of Construction Machinery in revised WPI Series of
base year 2004-05 on the adjustment of Contract Price in major Construction Contracts
and recommendations for the remedy and improvement
- by Navlesh Kumar, Arun Soni, Ajay Tripathi
Continental Engineering Corporation, 7th
Floor, Signature Tower-B, Sector-29, NH-8, Gurgaon-122002,
Ph+91-124-4918888, Fax-+91-124-4919989, web-site-www.cici.co.in
Page 1 of 12
_____________________________________________________________
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.
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) as 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.
Abstract: The representation of the Subgroup “Construction Machinery” in the latest series of Wholesale
Price Index is to be in line with the common machineries being used in Construction Industry. There is a dire
need to revamp the Subgroup - Construction Machinery of the WPI Series by way of increasing the
representation which currently covers three insignificant equipment items in order to appropriately
compensate the Contractor on account of rise in prices of machinery & machinery components of the
Contracted Works.

3. Effect of newly introduced Subgroup of Construction Machinery in revised WPI Series of
base year 2004-05 on the adjustment of Contract Price in major Construction Contracts
and recommendations for the remedy and improvement
- by Navlesh Kumar, Arun Soni, Ajay Tripathi
Continental Engineering Corporation, 7th
Floor, Signature Tower-B, Sector-29, NH-8, Gurgaon-122002,
Ph+91-124-4918888, Fax-+91-124-4919989, web-site-www.cici.co.in
Page 2 of 12
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,
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:
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 Year 2004-05.

4. Effect of newly introduced Subgroup of Construction Machinery in revised WPI Series of
base year 2004-05 on the adjustment of Contract Price in major Construction Contracts
and recommendations for the remedy and improvement
- by Navlesh Kumar, Arun Soni, Ajay Tripathi
Continental Engineering Corporation, 7th
Floor, Signature Tower-B, Sector-29, NH-8, Gurgaon-122002,
Ph+91-124-4918888, Fax-+91-124-4919989, web-site-www.cici.co.in
Page 3 of 12
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
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
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 revised WPI Series of
base year 2004-05 on the adjustment of Contract Price in major Construction Contracts
and recommendations for the remedy and improvement
- by Navlesh Kumar, Arun Soni, Ajay Tripathi
Continental Engineering Corporation, 7th
Floor, Signature Tower-B, Sector-29, NH-8, Gurgaon-122002,
Ph+91-124-4918888, Fax-+91-124-4919989, web-site-www.cici.co.in
Page 4 of 12
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

6. Effect of newly introduced Subgroup of Construction Machinery in revised WPI Series of
base year 2004-05 on the adjustment of Contract Price in major Construction Contracts
and recommendations for the remedy and improvement
- by Navlesh Kumar, Arun Soni, Ajay Tripathi
Continental Engineering Corporation, 7th
Floor, Signature Tower-B, Sector-29, NH-8, Gurgaon-122002,
Ph+91-124-4918888, Fax-+91-124-4919989, web-site-www.cici.co.in
Page 5 of 12
WPI 1993-94 Series WPI 2004-05 Series
(K) MACHINERY & MACHINE TOOLS (K) MACHINERY & MACHINE TOOLS
Mining/Quarrying/Metallurgical
Machinery/Parts
0.0386
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 PlantEquipments 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 equipment 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, this Subgroup is
got deleted.

7. Effect of newly introduced Subgroup of Construction Machinery in revised WPI Series of
base year 2004-05 on the adjustment of Contract Price in major Construction Contracts
and recommendations for the remedy and improvement
- by Navlesh Kumar, Arun Soni, Ajay Tripathi
Continental Engineering Corporation, 7th
Floor, Signature Tower-B, Sector-29, NH-8, Gurgaon-122002,
Ph+91-124-4918888, Fax-+91-124-4919989, web-site-www.cici.co.in
Page 6 of 12
2.9 The Group of ‘Machinery &Machinery tools’ under New Series consists of twelve
Subgroups wherein two Sub groups i.e. ‘Industrial Machinery’ Or ‘Construct Machinery’
could be considered as a replacement or close to the earlier Subgroup of ‘Heavy Machinery
& Parts’.
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
become mildly less but each being a specific item/commodity, replaced item/commodity
shall continue to make movement of indices depending upon price fluctuations and
transactions.
3.2 In case of machineries, it is appreciable that a Subgroup of ‘Construction Machinery’ to
represent the wholesale price fluctuation of underlying 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 basket of underlying machineries (coverage of items under
Construction Machinery) and overall weight-age, a great variance in comparison to old
series is appeared. Otherwise as well, due to presence of nominal and light machinery
items under its basket, Subgroup of Construction Machinery cannot act as a true
representative of machineries that are being commonly used for Construction Projects’. It
lacks quantitatively as well as qualitatively.
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 basket of machineries/ commodity and thus proper coverage of

8. Effect of newly introduced Subgroup of Construction Machinery in revised WPI Series of
base year 2004-05 on the adjustment of Contract Price in major Construction Contracts
and recommendations for the remedy and improvement
- by Navlesh Kumar, Arun Soni, Ajay Tripathi
Continental Engineering Corporation, 7th
Floor, Signature Tower-B, Sector-29, NH-8, Gurgaon-122002,
Ph+91-124-4918888, Fax-+91-124-4919989, web-site-www.cici.co.in
Page 7 of 12
machineries is an essential requirement to make the indices true representative to the
Construction Contracts/Projects.
3.6 The Price Adjustment (Escalation) provision where WPI of ‘Construction Machinery’ shall
be used is generally provided for the major construction contract/project having execution
time more than one year.
The typical machineries that are being used for such type of contract/project regardless of
nature of project (Building, Industrial, Highway& Bridges, MRTS (Metro), Hydropower,
Refinery & Petrochemical) and are essentially required to be considered under the basket
of Construction Machinery to make truly representative are as below:
1. Excavation/Mining/
Quarrying equipments
2. Earth movers
3. Compactor
4. TractorTrailor
5. Concrete Precast mould
6. Batching Plant
7. Concrete pump
8. Transit mixer
9. Hydraulic Rig/Equipment
10. Mobile crane
11. Tower crane
12. Material handling equipment
13. Pumps
14. Compressor
15. Generator
16. Transformer
17. Welding Unit
18. Rebar Cutting & Bending machine
19. Cooling & Refrigeration unit
20. Boiler and steam curing unit
21. Concrete Vibrator
3.7 In comparison to above listed machineries which are common for all type of major
construction projects, the machineries chosen under the basket of ‘Construction Machinery’
(0.044) are Loader (0.010), Concrete vibrator & mixtures(0.012) and Other construction
machine & equipment (0.021). These are minuscule in number to act as representatives of
machineries as well insignificant for the Construction Projects where more and more heavy
and state of art machineries are being utilized for speedy, highly technical and complex
construction.
3.8 Moreover, to understand the impact, the rise of index reflected by Subgroup of Construction
machinery’ in last 5 years since its advent, in comparison with other possible alternatives
has to be seen. For this purpose following Indices of group/subgroups have been
considered. This study shall also help in finding reasonable alternative Indices for use at
present as enlargement of basket of Construction Machinery as suggested above is
proposed for future revision of WPI series :
 All commodities
 Major Group of Manufacturing Products
 Group of Machinery & Machine Tools
 Subgroup of ‘Industrial Machinery’
 Designed(customized) Subgroup of relevant machinery from the item of existing
series

9. Effect of newly introduced Subgroup of Construction Machinery in revised WPI Series of
base year 2004-05 on the adjustment of Contract Price in major Construction Contracts
and recommendations for the remedy and improvement
- by Navlesh Kumar, Arun Soni, Ajay Tripathi
Continental Engineering Corporation, 7th
Floor, Signature Tower-B, Sector-29, NH-8, Gurgaon-122002,
Ph+91-124-4918888, Fax-+91-124-4919989, web-site-www.cici.co.in
Page 8 of 12
 Subgroup of Construction Machinery
3.9 ‘All commodities’ as name suggest covers basket of all items of WPI, major group
‘Manufacturing Products’ covers all manufacturing items, Group of ‘Machinery & Machine
tools’ covers all subgroups of machinery and equipments including Industrial machinery
Construction Machinery, electrical and non-electrical machinery.
3.10 Industrial Machinery contains considerable machinery items such as Cranes (0.04),
Material handling equipment (0.05), Mining/Quarrying Equipment (0.03), Hydraulic
equipment (0.04), Pneumatic tool (0.007), Pump & assembly (0.10) etc. that are used for
construction and come under Construction machinery. In fact, the basket of Industrial
Machinery has more number of machineries that are used for construction than the
machineries covered under Construction Machinery. Its overall weightage of 1.83 is also
equivalent to weight age of Heavy machinery & tools of 1.82 of last series and thus,
altogether, Industrial Machinery is more suitable than the Construction Machinery except
the terminology of ‘Construction’.
3.11 Moreover, a customized basket of relevant machinery item picking from existing Series as
shown below has been designed in attempt to find out more reasonable alternative:
Table-7
Commodity Weightage
Customized Basket of machinery representing construction
[Construction Industry’s customized Subgroup]
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
Tractors 0.40572
Auto Parts 0.80388
Other Construction Machinery / Equipment 0.02198

10. Effect of newly introduced Subgroup of Construction Machinery in revised WPI Series of
base year 2004-05 on the adjustment of Contract Price in major Construction Contracts
and recommendations for the remedy and improvement
- by Navlesh Kumar, Arun Soni, Ajay Tripathi
Continental Engineering Corporation, 7th
Floor, Signature Tower-B, Sector-29, NH-8, Gurgaon-122002,
Ph+91-124-4918888, Fax-+91-124-4919989, web-site-www.cici.co.in
Page 9 of 12
 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
Group/Subgroup Name Weightage
EFFECT OF RISE IN INDEX ON PRICE ADJUSTMENT
COMPUTATION
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 Industry’s
customized Subgroup
1.73727 0% 2.02% 6.28% 9.28% 12.12% 15.11%
Construction Machinery 0.04487 0% 1.32% 1.23% 3.52% 5.26% 7.61%
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.
3.12 It may be seen from above graph and table that rise of WPI of Construction machinery over
five years period has been lowest in comparison to others. Highest rise of 42.69% is in All
commodities, 27.55% is in Manufacturing products, 13.72% in Machinery & Machinery tools
16.99% in Industrial Machinery whereas 7.61% in Construction Machinery. The
Customized Basket of Machinery gives a rise 15.11% amid of Industry Machinery &
Machinery & Machine tools.
110.00
130.00
150.00
170.00
190.00
2009 2010 2011 2012 2013 2014
All Commodities Manufactured Products
Machinery & Machine Tools Industrial Machinery
Construction Machinery Construction Industry’s customized Subgroup

11. Effect of newly introduced Subgroup of Construction Machinery in revised WPI Series of
base year 2004-05 on the adjustment of Contract Price in major Construction Contracts
and recommendations for the remedy and improvement
- by Navlesh Kumar, Arun Soni, Ajay Tripathi
Continental Engineering Corporation, 7th
Floor, Signature Tower-B, Sector-29, NH-8, Gurgaon-122002,
Ph+91-124-4918888, Fax-+91-124-4919989, web-site-www.cici.co.in
Page 10 of 12
3.13 The effect of rise in index of bottom four alternatives on price adjustment for a moderate
project of Value say Rs 300 crore has further been shown below to understand the financial
impact:
Project Cost = Rs. 300 Crs.
Time for Completion = 3 years
Percentage for Plant & Machinery component = 20% as per NHAI Contracts (18% in Metro Projects).
One year project cost = Rs 100 Crs.
Table-9
All amounts beloware in Rs. Crs.
Commodity Name Weightage
Total Price Adjustment
computed from effect
of rise in Index2012 2013 2014
Machinery & Machine Tools 8.93148 1.42* 1.88 2.33 5.63
Industrial Machinery 1.83759 2.00 2.51 2.89 7.40
Construction Industry’s
customized Subgroup
1.73727 1.58 2.06 2.57 6.21
Construction Machinery 0.04487 0.60 0.89 1.29 2.78
‘* Sample Calc., for Machinery & Machine Tools, Year 2012 (Ref Table 8) = 8.35% of [85% of (300 x 20%) / 3] = 1.42
Where, 8.35% is from Table 8 and, Plant & Machinery component on which Price Adjustment is applicable per
year = [85% of (300 x 20%) / 3]. Further 20% is the Plant & Machinery in a Construction Project, based on NHAI
Contracts; the same is 18% in Metro projects.
3.14 Above table shows that impact of WPI of Industrial Machinery that having wider coverage
and more construction machinery has highest than WPI of any other group/subgroup,
whereas WPI of Construction Machinery provides amount of adjustment. The customized
subgroup provides lower impact than Industrial Machinery but better than the Group of
Machine& Machine Tools and far better than the Construction Machinery.
3.15 The reasons for such wide variance in performance of Subgroup of Construction Machinery
would be attributed to followings:
3.15.1 As ‘Construction Machinery’ subgroup does not have wide representative of machine
items under it as well as has very insignificant item with low weight age as explained
above thus, subgroup is not insensitive and is not moving with market economics.
3.15.2 Deficiency in date collection of prices. As per Section 4.1.1 of Manual of WPI available
on website of Economic Advisor, the collection of prices of manufacturing products is on
voluntarily basis and thus flow of priced would be irregular or even deficient.
3.15.3 There is literally no movement of prices of given machine items under basket. However,
it is unbelievable that there has been no rise or very steady rise in prices of given
machine items when costs of whole goods of market are on rise. It is accepted fact that
Inflation in India is due to rise in input cost and supply side problem rather than the
demand.

12. Effect of newly introduced Subgroup of Construction Machinery in revised WPI Series of
base year 2004-05 on the adjustment of Contract Price in major Construction Contracts
and recommendations for the remedy and improvement
- by Navlesh Kumar, Arun Soni, Ajay Tripathi
Continental Engineering Corporation, 7th
Floor, Signature Tower-B, Sector-29, NH-8, Gurgaon-122002,
Ph+91-124-4918888, Fax-+91-124-4919989, web-site-www.cici.co.in
Page 11 of 12
3.16 What so ever the reason, it is well established that Subgroup of ‘Construction Machinery’ is
not representing true picture of price fluctuation (rise) and is not sensitive enough to move
along with market condition. At the same time, Subgroup of ‘Industrial Machinery’ which
has wider representation or even have more common machinery of construction than the
subgroup of Construction Machinery is sensitive and moving according to overall trend of
general inflation. Even, Group of Machinery & Machine Tools, which is one level higher and
has much wide coverage, is more sensitive and is making movement of index than the
subgroup of Construction Machinery.
3.17 In the past decades, the usage of heavy and highly complex hydraulic machinery such as
Earth Movers, Pavers, Batching Plants, WMM Plants, HM Plants, various types of Cranes,
Crushers, Tunnel Boring Machine, Piling/ Diaphragm wall rig etc. has been 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 than
the present ones which are just notional and do not represent the machineries as whole for
construction projects. Therefore, a further enlargement of basket of Subgroup of
‘Construction Machinery’ to encompass the machineries that are typically used for major
construction contracts is mandatorily required in order to use the WPI for computation of
price adjustment to appropriately compensate the Contractor on account of price rise in
machinery and machinery components of the contracted Works.
4. RECOMMENDATION / CONCLUSION
After advent of new series with effect from 14 Sep 2014, various contracting authorities in
existing/running have recommended to use the WPI of ‘Construction Machinery’ as a
replacement of WPI of ‘Heavy Machinery & Parts’ of old series. Further, the new contracts
after arrival of the series are /shall be also using the WPI of Construction Machinery in their
price adjustment formula. As explained in preceding para that subgroup of ‘Construction
Machinery’ of WPI is not true representative of common machineries that being used for all
type of major construction projects and moreover its growth is not in line with general
inflation, thus not reasonably compensating the Contractor. Therefore, recommendations
are for existing contracts, future contracts and for restructuring and enlargement of basket
of ‘subgroup of ‘Construction Machinery’ of WPI in future revision of series.
4.1 FOR RUNNING CONTRACTS: (existing projects with various departments like PWD,
CPWD, NHAI etc.):
4.1.1 Usage of Index numbers of Industrial Machinery (Weightage – 1.83759):
As explained in previous section that in current WPI series, the Subgroup of
Industrial Machinery having weight age of 1.83 equivalent to subgroup of ‘Heavy
Machinery & Parts’ of 1.82 of last series, has more coverage of machinery or even
has more number of machineries that are used for construction than the
machineries covered under Construction Machinery.

13. Effect of newly introduced Subgroup of Construction Machinery in revised WPI Series of
base year 2004-05 on the adjustment of Contract Price in major Construction Contracts
and recommendations for the remedy and improvement
- by Navlesh Kumar, Arun Soni, Ajay Tripathi
Continental Engineering Corporation, 7th
Floor, Signature Tower-B, Sector-29, NH-8, Gurgaon-122002,
Ph+91-124-4918888, Fax-+91-124-4919989, web-site-www.cici.co.in
Page 12 of 12
Apart from terminology of Construction that differentiates the subgroup (between
Construction and Industrial), it is most appropriate in the given condition of available
series.
OR
4.1.2 Usage of customized Subgroup of machinery for the Construction Industry
(Weightage – 1.73727):
The customized basket for Construction Machinery that has been prepared by
picking up items from various subgroups can also be used for the existing contract
after approving the whole basket by the authorities.
OR
4.1.3 Usage of Index numbers for Group Commodity Machinery & Machine Tools
(Weightage – 8.93148):
If the above two options are not found then the Group Head of all machinery items
i.e. ‘Machinery and Machine Tools’ which is obviously represents at macro level for
all machineries and machineries components including Construction Machineries of
existing series can be used.
4.2 FOR FUTURE CONTRACTS:
4.2.1 Usage of WPI of ‘Industrial Machinery; (Weight age – 1.83759):
As explained above
OR
4.2.2 Usage of WPI of Machinery & Machine Tools (Weight age – 8.93148)
As explained above
4.3 FOR FUTURE REVISION OF WPI SERIES by the Office of Economic Advisor (Ministry
of Commerce & Industry)
4.3.1 A further enlargement of basket of Subgroup of ‘Construction Machinery’ to
encompass the machineries that are typically used for major construction contracts
is mandatorily required in order to use the WPI for computation of price adjustment
to appropriately compensate the Contractor on account of price rise in machinery
and machinery components of the contracted Works
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