Context:
India has introduced a new Consumer Price Index (CPI) series with base year 2024, replacing the 2012 series, to reflect updated consumption patterns and structural changes in the economy.
Key Highlights:
Updated Base Year and Data Source
• The new CPI series uses data from the Household Consumption Expenditure Survey (HCES) 2023–24.
• It replaces the CPI series with base year 2012.
Revised Weightage of Food
• The weight of food and beverages in the CPI basket has been reduced from 45.86% to 36.75%.
• This reflects changing consumption patterns due to higher incomes and diversification of spending.
Inclusion of Online Marketplaces
• For the first time, prices from 12 online marketplaces are included in CPI calculations.
• This acknowledges the growing role of e-commerce and digital retail.
Expansion of Basket and Coverage
• More items and services are included to capture the expanding service economy.
• This improves the accuracy of inflation measurement.
Significance / Applications
• Provides a more realistic measure of inflation.
• Enhances the effectiveness of monetary policy decisions.
• Improves budget planning for inflation-linked payments like Dearness Allowance (DA) and Dearness Relief (DR).
Relevant Prelims Points:
- Consumer Price Index (CPI)
- Measures changes in the price level of a basket of consumer goods and services.
- Compiled in India by the National Statistical Office (NSO) under MoSPI.
- Base Year in Index Numbers
- The reference year against which price changes are measured.
- Household Consumption Expenditure Survey (HCES)
- Conducted by the National Sample Survey Office (NSSO).
- Provides data on household consumption patterns.
- Monetary Policy Committee (MPC)
- Six-member committee of the Reserve Bank of India (RBI).
- Responsible for setting policy interest rates to control inflation.
- India follows an inflation targeting framework (4% ± 2%).
Relevant Mains Points:
Importance of Updating CPI Base Year
• Consumption patterns evolve due to income growth, urbanization, and policy changes.
• Updating the CPI ensures inflation measurement reflects real economic conditions.
Impact on Monetary Policy
• Accurate CPI data allows the RBI’s MPC to calibrate interest rates effectively.
• Lower food weightage may reduce volatility in the overall inflation index.
Implications for Government Finance
• CPI influences salary adjustments, pension payments, and welfare indexation.
• A stable inflation measure improves budget predictability and fiscal planning.
Challenges
• Need for back-series data for accurate comparison with earlier CPI values.
• Regular revision (ideally every five years) is necessary to maintain accuracy.
Way Forward
• Ensure periodic updates of CPI methodology.
• Improve data collection using digital and e-commerce platforms.
• Provide historical back data to ensure continuity in economic analysis.
UPSC Relevance:
• Prelims: CPI, inflation, MPC, HCES.
• Mains (GS III): Inflation measurement, monetary policy framework, economic statistics and policymaking.