India Revises CPI Base Year to 2024: What It Means for Inflation and Policy

India Revises CPI Base Year to 2024: What It Means for Inflation and Policy

India is set to roll out a revised Consumer Price Index (CPI) series with the base year updated from 2012 to 2024. The revision, undertaken by the Ministry of Statistics and Programme Implementation (MoSPI), is part of a broader overhaul of key macroeconomic indicators including GDP and the Index of Industrial Production (IIP).

Though it may appear technical, the change has direct implications for monetary policy, interest rates, and household finances. The CPI is the primary inflation gauge used by the Reserve Bank of India (RBI), which targets inflation at 4% with a tolerance band of ±2%.

Why the Base Year Is Being Updated

A base-year revision ensures that inflation data reflects current consumption patterns rather than outdated economic structures. Over time, incomes rise, lifestyles evolve, and spending priorities change. Without periodic updates, official statistics risk misrepresenting the real economy.

MoSPI has incorporated:

• Updated consumption weights
• Expanded data sources
• Methodological improvements
• Greater digital price coverage

India has also indicated that such revisions may occur every 3–5 years going forward to maintain accuracy.

Major Change: Reduced Weight of Food

One of the most significant changes is the reduction in the weight of food and beverages in the CPI basket:

• Earlier weight: 45.86%
• Revised weight: 36.75%

As incomes grow, households spend a smaller share on staples and more on services such as transport, housing, health, communication, and recreation. The updated CPI reflects this structural transition.

Because food prices are often volatile, a lower food weight may reduce sharp swings in headline inflation.

What It Means for Inflation Numbers

According to estimates, the revised CPI could increase overall inflation by around 20–30 basis points, assuming prices remain unchanged.

Even small changes matter because:

• RBI policy decisions depend on decimal-level inflation readings
• Interest rates affect home loans and EMIs
• Deposit returns and bond yields respond to inflation trends

Recent data showed retail inflation averaging 2.2% in 2025 — the lowest in 12 years. The revised series may alter how such trends are interpreted in future.

Inclusion of the Digital Economy

For the first time, CPI will include price data from 12 online markets in cities with populations above 25 lakh. This captures growing e-commerce consumption.

Other additions:

• Rural house rent alongside urban rent
• Telecom and OTT subscriptions
• Broader service-sector representation

The new CPI will track 358 weighted items (308 goods and 50 services) across:

• 1,465 rural markets
• 1,395 urban markets

This expanded coverage aims to make inflation measurement more representative of modern India.

Why It Matters

Inflation influences:

• Home loan EMIs
• Savings returns
• Government borrowing
• Fiscal planning

The revised CPI reflects a more urbanised, service-oriented, and digitally connected India. While it may not change prices immediately, it will shape how policymakers interpret inflation and decide on interest rates.

Exam-Oriented MCQs

Q1. India has revised the base year of the Consumer Price Index (CPI) from 2012 to which year?
(a) 2020
(b) 2022
(c) 2023
(d) 2024
(e) 2025

Q2. The CPI is the primary inflation gauge used by which institution for monetary policy decisions?
(a) Ministry of Finance
(b) NITI Aayog
(c) Reserve Bank of India
(d) SEBI
(e) Economic Advisory Council

Q3. The weight of food and beverages in the revised CPI basket has been reduced to:
(a) 30.75%
(b) 34.25%
(c) 36.75%
(d) 40.50%
(e) 45.86%

Q4. Under India’s inflation targeting framework, the RBI’s inflation target is:
(a) 2% ± 1%
(b) 4% ± 2%
(c) 5% ± 2%
(d) 6% ± 1%
(e) 3% ± 1%

Q5. The revised CPI will now include price data from online markets in cities with populations above:
(a) 5 lakh
(b) 10 lakh
(c) 15 lakh
(d) 20 lakh
(e) 25 lakh

Q6. The revised CPI series will track how many weighted items?
(a) 250
(b) 300
(c) 325
(d) 358
(e) 400