10. CPI Base Revision 2024: Aligning Inflation with Modern Consumption

The Ministry of Statistics and Programme Implementation (MoSPI) has officially transitioned the Consumer Price Index (CPI) to a new base year of 2024 (from 2012). This decadal overhaul ensures that the \'inflation mirror\' accurately reflects the structural shifts in the Indian economy, such as increased urbanization, the digital revolution, and the transition from a \'necessity-based\' to a \'service-oriented\' consumption pattern. Core Summary of the Development• Base Year Update: The reference year for measuring retail inflation has shifted from 2012 to 2024, utilizing data from the Household Consumption Expenditure Survey (HCES) 2023-24. • Structural Weight Shift: The weightage of Food and Beverages has been significantly reduced (from 45.86% to 36.75%), while the weight of Housing (from 10.07% to 17.66%) and Services has increased, reflecting higher standards of living. • Expanded Basket: The number of items tracked has increased from 299 to 358, incorporating modern consumption items like OTT subscriptions, digital services, and standardized gold jewelry, while removing obsolete items like cassette players. • Geographical and Digital Expansion: Price collection now covers 1,465 rural villages and 1,395 urban markets, with new integration of e-commerce price tracking for 12 major metropolitan areas. • Methodological Modernization: The new series adopts the UN’s COICOP 2018 (Classification of Individual Consumption According to Purpose) framework, increasing the number of divisions from 6 to 12 for better global comparability. • Real-time Data Quality: Transition to Computer-Assisted Personal Interview (CAPI) devices allows for real-time validation and reduces manual errors in price reporting across the country. Key Definitions • Consumer Price Index (CPI): A measure that examines the weighted average of prices of a basket of consumer goods and services, used to track changes in the cost of living. • Base Year: A specific year used as a benchmark for comparison in an index; it is assigned a value of 100. • Core Inflation: A measure of inflation that excludes volatile sectors like Food and Fuel, providing a clearer picture of long-term price trends. • COICOP: An international functional classification used to group household consumption expenditures, ensuring statistical consistency across nations. Constitutional and Legal Context • Article 246 (Schedule VII): \'Statistics\' is a subject mentioned in the Union List (Entry 94) and the Concurrent List (Entry 45), giving the Centre power to conduct surveys like the HCES. • Collection of Statistics Act, 2008: The legal framework that empowers MoSPI to collect data from households and businesses for national indices. • RBI Act, 1934 (amended 2016): Provides the legal mandate for the Flexible Inflation Targeting (FIT) framework, where the RBI uses CPI-Combined as the primary anchor to maintain inflation at 4% (+/- 2%). Additional Key Points • Reduced Volatility: Since food prices are highly volatile due to monsoon and supply shocks, the reduced food weight is expected to make the headline inflation number more stable and less prone to sudden spikes. • Operational Relief for RBI: The revision helps the RBI focus more on demand-side inflation. Previously, high food inflation often forced the RBI to keep interest rates high even when the broader economy required stimulus. • Housing and Rent: The inclusion of rural rent and improved urban rent measurement techniques will capture the \'shelter cost\' more accurately, which had been a major gap in the 2012 series. Conclusion The 2024 CPI rebasing is more than a technical adjustment; it is an economic \'reset\' that acknowledges the \'New India.\' By reducing the dominance of the \'plate\' (food) and increasing the influence of the \'roof\' (housing) and \'connectivity\' (digital services), the index provides a more realistic foundation for monetarypolicy. For the common man, this means that policy decisions on interest rates and wages will finally be based on what they actually spend their money on in 2026, rather than a lifestyle that existed over a decade ago. UPSC Relevance • GS Paper III: Issues relating to planning, mobilization of resources, growth, development, and employment; Inclusive growth and issues arising from it (Inflation\'s impact on the poor). • GS Paper II: Statutory, regulatory, and various quasi-judicial bodies (RBI and MoSPI). • Mains Perspective: Analyze how the revision of the CPI base year enhances the effectiveness of Monetary Policy transmission in India. Discuss the significance of adopting international standards like COICOP 2018 for India\'s global economic standing.