India’s CPI Basket Revision and Base Year Change for Improved Inflation Tracking

The Consumer Price Index (CPI) in India is undergoing a significant overhaul with an expansion of the basket and a change in the base year to 2024. This update, based on the Household Consumption Expenditure Survey (HCES) 2023-24, aims to reflect current consumption patterns accurately for better economic policymaking.

Key Points

• Current Base Year: 2012
• New Base Year: 2024 (to be effective from Q1 2026)
• Current Basket: 299 items
• Expected New Basket: ~407 items (based on HCES 2023–24)
• Food & Beverage Weight: 54.2% of the 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 goods and services, across Indian households.
• A new weighting diagram will be developed to reflect current spending patterns accurately.
• The expanded basket aims to capture modern consumption trends like digital services, health tech, and processed food.

Excluding Food from Inflation Targeting

• The Economic Survey 2023–24 recommended excluding food items from inflation targeting.

Rationale

• Food prices are susceptible to supply shocks like weather conditions and global markets.
• Monetary policy tools such as repo rates might not effectively control these shocks.
• Food and beverages currently make up over half of the CPI basket, significantly impacting inflation readings.

Background and Significance

• CPI was initially designed to adjust workers’ wages in response to changes in the cost of living.
• Today, CPI plays a crucial role in inflation targeting by the RBI, macroeconomic policy planning, and national income deflation.
• The last revision in 2015 used data from CES 2011–12 (NSS 68th Round).

Summary/Static Details

• Why in the news? India to Revise CPI Basket and Base Year for Better Inflation Tracking
• Current CPI Base Year: 2012
• New CPI Base Year: 2024 (Effective Q1 2026)
• Existing Number of Items in Basket: 299 (259 goods + 40 services)
• Expected Number of Items: ~407 (Based on HCES 2023–24 data)
• Food and Beverage Weight: 54.2% of CPI (currently)
• Price Collection Coverage: 1,114 urban markets and 1,181 villages (by NSO field staff)
• Last CPI Revision: 2015 (used CES 2011–12)

Key Takeaways for Competitive Exams

Understanding the recent changes in India’s CPI basket and base year is crucial for competitive exams. Key takeaways include:

• The revision of the CPI basket and base year to 2024 aims to capture current consumption patterns more accurately.
• An increase in the number of items in the basket from 299 to around 407 is expected based on the HCES 2023–24 data.
• Food and beverage items currently hold a significant weight in the CPI, impacting inflation readings.
• Excluding food from inflation targeting is being considered due to its susceptibility to supply shocks.
• CPI plays a vital role in inflation targeting by the RBI and macroeconomic policy planning.