India to Revise CPI Basket and Base Year for Better Inflation Tracking

The Consumer Price Index (CPI), a key indicator for measuring retail inflation in India, is set for a significant revamp. As per the Ministry of Statistics and Programme Implementation (MoSPI), the CPI basket will be expanded, and the base year will be updated to 2024, based on findings from the Household Consumption Expenditure Survey (HCES) 2023-24. This shift aims to better reflect evolving consumption patterns and strengthen the accuracy of economic policymaking.

Why in News?

Minister of State for Statistics Rao Inderjit Singh recently announced that India will Update the CPI basket to include more than the current 299 items. Change the base year from 2012 to 2024, based on fresh consumption data from HCES 2023–24. Possibly revisit inflation targeting norms, especially by re-evaluating the weightage of food items, which dominate the CPI. This development comes amid ongoing debates on whether inflation targeting should exclude food prices due to their supply-driven volatility.

Key Points

• Current Base Year: 2012
• New Base Year: 2024 (to be implemented from Q1 2026)
• Current Basket: 299 items
• Expected New Basket: ~407 items (based on HCES 2023–24)
• Food & Beverage Weight: 54.2% of current CPI
• Services Representation: 40 items (23.36% weight)
• Goods Representation: 259 items (76.6% weight)

CPI Basket Expansion and Base Year Revision

• The HCES 2023–24 collected data on 407 consumption items, including both goods and services, across Indian households.
• A new weighting diagram is being developed to reflect more current spending patterns.
• The expanded basket is intended to capture modern consumption trends, such as digital services, health tech, and processed food.

Excluding Food from Inflation Targeting

• The Economic Survey 2023–24 suggested removing food items from inflation targeting.

Rationale,

• Food prices are prone to supply shocks (weather, global markets).
• Monetary policy tools like repo rate are ineffective in controlling such shocks.
• Currently, food and beverages comprise over half of the CPI basket, heavily influencing inflation readings.

Background and Significance

• CPI was originally designed to adjust workers’ wages in response to cost-of-living changes.

Today, it is central to,

• Inflation targeting by RBI
• Macroeconomic policy planning
• National income deflation
• The last revision (in 2015) used data from CES 2011–12 (NSS 68th Round).