Context
- Recently, the Ministry of Statistics and Programme Implementation (MoSPI) has initiated the process to revise the base year for the Consumer Price Index (CPI) from the current 2012 to a more contemporary period, likely 2024 or 2024-25.
- The revision is a critical structural reform aimed at accurately capturing inflation by updating the “market basket” of goods and services to reflect modern consumption habits, such as increased spending on processed foods, health, and durable goods.
Key Pillars of CPI Base Revision
1. The Institutional Framework
- Organization: The National Statistical Office (NSO), under the Ministry of Statistics and Programme Implementation (MoSPI), is responsible for compiling and releasing CPI (Rural, Urban, Combined).
- Frequency: CPI is released on a monthly basis.
- Current Status: The current base year is 2012.
2. Why Revise the Base Year?
- Consumption Shift: Over time, the proportion of income spent on food typically declines as a country develops (Engel’s Law), while spending on services (education, internet, transport) increases.
- HCES Linkage: The revision is primarily based on the Household Consumption Expenditure Survey (HCES). Since the 2017-18 survey was junked due to data quality issues, the 2022-23 survey provides the new baseline for weights.
- Reducing Food Weightage: Currently, the “Food and Beverages” group carries a weight of roughly 45.86% in CPI-Combined. Experts suggest this may drop significantly in the new series, as HCES shows Indians are spending less of their total budget on cereals and more on eggs, meat, and processed foods.
3. Variants of CPI in India
- CPI for Industrial Workers (IW): Base Year 2016 (Compiled by Labour Bureau).
- CPI for Agricultural Labourers (AL): Base Year 1986-87 (Compiled by Labour Bureau).
- CPI for Rural Labourers (RL): Base Year 1986-87 (Compiled by Labour Bureau).
- CPI (Rural/Urban/Combined): Base Year 2012 (Compiled by NSO). This is the headline inflation used by the RBI.
4. Impact on Monetary Policy
- The Reserve Bank of India (RBI) uses CPI-Combined as its primary anchor for the Flexible Inflation Targeting (FIT) framework.
- A revised base year ensures that the “inflation” the RBI fights is the inflation actually felt by the modern consumer.
Q. With reference to the Consumer Price Index (CPI) in India, consider the following statements:
1. The National Statistical Office (NSO) is responsible for the compilation of CPI for Industrial Workers as well as CPI for Agricultural Labourers.
2. The current revision of the CPI base year is necessitated by the findings of the latest Household Consumption Expenditure Survey (HCES).
3. In the current CPI (Combined) basket, the weightage of 'Food and Beverages' is higher than the weightage of 'Housing' and 'Fuel and Light' combined.
Which of the statements given above is/are correct?
A) 1 and 2 only
B) 2 and 3 only
C) 1 and 3 only
D) 1, 2, and 3
Correct Answer: B
Solution:
• STATEMENT 1 INCORRECT: The NSO compiles CPI (Rural/Urban/Combined). However, the CPI for Industrial Workers (IW), Agricultural Labourers (AL), and Rural Labourers (RL) are compiled by the Labour Bureau in the Ministry of Labour and Employment.
• STATEMENT 2 CORRECT: Base revisions are fundamentally driven by changes in consumption patterns, which are captured by the Household Consumption Expenditure Survey (HCES) conducted by the NSO.
• STATEMENT 3 CORRECT: In the current 2012 series, Food and Beverages has a weight of approximately 45.86%. Housing (~10%) and Fuel and Light (~6.8%) combined total significantly less than the food component.
