Hi,
>>Where in PI we need to install the PGP public key received from partner
You don't need to install keys in PI server .
By default, the keys can be placed under the path usr/sap/<System ID>/<Instance ID>/sec. But in case you want to use a different path, then use the parameter keyRootPath to define your custom path.
Go through below blog for more clarity.
PGPEncryption Module: A Simple How to Guide
>>If partner has purchased certified keys for PGP. Partner has to send the public key and SAP PI will install public key to decrypt the message.
As above said public key is for encryption ,private key is for decryption.
If there are more interfaces to use PGP ,better to purchase licensed certified keys/generator.
If you want to go with that then use open source for keys generation by taking approval from client, you can find many in Google.
>>How we can check the compatibility with partner for signing algorithm?
for signing also will use the same keys ,but for signing will use private key,passphrase and for verifying will use public key
Regards
Venkat