The government is planning to update the base year of the Consumer Price Index to 2024 from 2012 at present, and that of other macro-indicators such as the GDP, IIP and WPI to 2022-23, official sources privy to the matter told FE. The new base years are likely to come into effect from 2026, the sources said.
“For the CPI, the new base year will come into effect from January 2026,” a source said, while adding that the results of the Household Consumption Expenditure Survey (HCES) 2022-23 will be used to constitute the new CPI basket.
The change in the base year would be prospective, meaning the new base year will not change the extant figures, which are based on 2011-12 base.
The sources said that the results of the ongoing HCES 2023-24, set to be concluded in July, will be used to check the “robustness” of the 2022-23 survey methodology. But the present survey is unlikely to be used for constituting the new CPI basket.
The sources said that a final decision regarding the base year change, of all indicators, will be taken by a committee, post elections. The present base year of GDP, IIP and WPI is 2011-12.
Economists have repeatedly pointed to the dire need of updating the base year of key macro indicators, specifically the CPI, as the current figures based on the present base year (2012) don’t necessarily represent the true state of economic activity.
FE had reported earlier that the government has expanded the scope of the year-long “market survey” –that began in January– to re-identify the items that Indian people consume most frequently for re-constituting the CPI.
The ministry of statistics is presently holding the surveys in as many as 2,860 representative physical markets, up from under 2,000 in the last exercise conducted in 2011-12. According to sources, the new CPI series could comprise over 320 items, compared with 299 in the extant one.
Pronab Sen, former chief statistician of India, said the government’s plan to revise the CPI base year to 2024 is wise as the market survey is being conducted in this calendar year. “In case they choose 2025 as the base year, they will have to conduct the market survey in that year.”
The change in the CPI is crucial as under the “flexible inflation-targeting” mechanism adopted by the Reserve Bank of India in 2015, the retail inflation is to be kept in the range of 4+/-2%. The RBI is determined to ensure the descent of consumer price inflation to the target of 4% and retain that level on a durable basis.
Earlier this month, Shashanka Bhide, external member of RBI’s Monetary Policy Committee, told FE that the government needs to ensure that the weights used for aggregating the headline consumer price index are aligned with more recent data, reflected under the HCES 2022-23. He had said that parameters set many years back do not reflect the current structure of the economy.
The first round, or HCES 2022-23, revealed that households are now spending more on non-discretionary items compared to 2011-12 levels. It also showed that the expenditure on food items by households have dropped much more than what is reflected in the present CPI series.
For instance, in the current series, the “foods and beverages” group in the CPI carries a weight of 46%. This is expected to fall down to 41%, if the government takes into account the results of the latest household consumption expenditure survey (HCES) only, FE had reported earlier citing an official.
Gaura Sen Gupta, chief economist, IDFC FIRST Bank, said that the CPI base year change is required as consumption patterns have changed since 2012. “The base change will reduce the volatility in headline inflation by giving higher weight to core and lesser weight to volatile food,” he said.
