Context:
• The Ministry of Statistics and Programme Implementation (MoSPI) has proposed a major revision to the Consumer Price Index (CPI) methodology, beginning February, to more accurately capture housing inflation, especially in rural India.
• The revamp will include monthly rent collection in both rural and urban areas, and exclude government/employer-provided housing from the housing index.
Key Highlights
- Inclusion of Rural Housing Inflation
- For the first time, rural housing inflation will be tracked monthly under CPI.
- Current system collects rent data only in urban areas, and only twice a year.
- Exclusion of Non-Market Housing
- Government and employer-provided housing will be removed from the housing index.
- Aim: reflect actual rental market transactions, not subsidised or proxy estimates.
- Weightage in Current CPI
- Housing has a weight of 21.67% in CPI-Urban and 10.07% in all-India CPI.
- Wider Sample Coverage
- New system involves monthly rental data from all selected dwellings, substantially expanding coverage.
Significance
- Why the Revision Matters
- Economists have long criticised the inclusion of government housing in CPI because rent was inferred using House Rent Allowance (HRA)—a poor proxy for real market rent.
- This change corrects a major distortion by focusing on actual market behaviour.
- Data Availability for Revision
- The Household Consumption Expenditure Survey (HCES) 2023–24 finally captured rural rental data, enabling MoSPI to build a rural housing index.
- Methodological Improvements
- IMF experts advised using a panel survey approach, converting six-month rent changes to one-month estimates to ensure consistency.
- New approach will improve statistical accuracy and reduce volatility.
- Transparency and Stakeholder Input
- MoSPI has invited feedback on the proposed changes until November 20, via email: pcdnso2020@mospi.gov.in.
- Broader Implications for Inflation Tracking
- Improved measurement will:
• Give a more realistic picture of rural cost-of-living trends
• Provide policymakers better tools for monetary policy
• Enhance understanding of housing stress in both regions
Mains Relevance
GS 3 – Economy
- Inflation measurement and reforms
- Data quality in economic governance
- Impact of housing inflation on consumption patterns
GS 2 – Governance
- Transparency in official statistics
- Institutional capacity for large-scale surveys