Food, a major component in the basket of commodities and services used to calculate the Consumer Price Index (CPI), is set to become significantly lighter as the ministry of statistics revamps the methodology for measuring consumer inflation. Based on the recommendations of an expert committee, the weight of food has been reduced to 37 percent from 46 percent earlier. This shift comes despite the reality that, in a developing country like India, a large share of household income is still spent on food. The expert group has argued, however, that consumption patterns have changed substantially since 2011-12, which remains the base year for the existing CPI series. Under the revised base year of 2023-24, housing, water, electricity, and gas will together account for nearly 19 percent of the index, up from about 10 percent earlier.
The revised methodology draws on more recent household consumption expenditure surveys. These indicate that rural households now spend about 47 percent of their total expenditure on food, a decline of three percentage points, while urban households spend around 40 percent, compared to 43 percent in the earlier series. Policymakers have also highlighted that food prices are especially vulnerable to weather shocks and supply disruptions, leading to sharp fluctuations. When food constituted almost half of the consumer basket, such volatility tended to exaggerate swings in the headline inflation rate.
There is merit in acknowledging that the exercise aims to modernise the CPI and align it with rising incomes and evolving lifestyles. The new series will, for the first time, capture spending on e-commerce platforms, OTT media consumption and internet services. It will also factor in house rent paid by rural households, which was previously excluded. In addition, the expansion of the survey sample size is intended to improve the statistical robustness and scientific rigour of inflation measurement.
Nevertheless, serious concerns remain about whether such a steep reduction in the weight of food and beverages risks obscuring the lived experience of inflation for a large section of the population. Food and fuel prices have been persistently volatile, even when prices of other goods have remained relatively stable. Despite gradual income growth, most working-class households continue to devote a substantial portion of their earnings to food and survival needs. Official surveys show that between 2011-12 and 2023-24, the share of food expenditure for rural households declined by only six percentage points, from 54 percent to 47 percent. Yet the proposed CPI weight for food and beverages is being cut by nearly nine points to about 36 percent. In the current geopolitical turmoil, some commodities, such as food and fuel, are bound to be volatile. It is fair that the CPI reflects this. A review is necessary to ensure the consumer index is as close to reality as possible.