Mint Explainer | India plans biggest inflation index overhaul in a decade—why housing costs will now matter more
The government is preparing the biggest revamp of India’s inflation index in a decade, with plans to track housing costs monthly and expand coverage beyond cities.
NEW DELHI: India is preparing to overhaul how housing inflation is measured–a technical but far-reaching change that could redefine how the country tracks price pressures and living costs. The ministry of statistics and Programme Implementation (MoSPI) plans to modernize the housing component of the Consumer Price Index (CPI), making it more reflective of real-world rental dynamics as housing markets expand beyond major cities and rents surge in the post-pandemic economy.
Economists say the reform could mark the most consequential change in inflation measurement since the last CPI revision more than a decade ago, potentially altering how policymakers, investors, and households interpret the cost of living.
What exactly is changing
MoSPI has proposed collecting rent data every month from both rural and urban areas, replacing the current system that surveys only urban households twice a year. For the first time, rural rents will be included in the housing index, a significant shift given the rapid urbanization of India’s smaller towns.
In another key reform, government and employer-provided accommodations, long a source of distortion, will be excluded. These dwellings are currently priced using notional rent or House Rent Allowance (HRA) linked to pay grades rather than actual market transactions, weakening the link between the housing index and true rental trends. The ministry says the new approach will make the index more robust and representative of what households actually pay for housing.
Why the change matters
Economists have long criticized India’s housing index for understating inflation by relying on outdated and narrowly sourced data. Because rent surveys are infrequent and confined to cities, the current framework misses shifts in smaller towns and rural areas, where housing costs have been rising faster as migration accelerates.
“The methodology for measuring housing inflation needs a relook," said Madan Sabnavis, chief economist at Bank of Baroda. “Currently, the CPI captures only urban housing, and even there, data gets distorted—the housing component tends to rise noticeably only during Pay Commission revisions. In reality, urban rents typically increase 2-5% a year."
A more comprehensive approach, he added, should expand the sample to include metros, semi-urban, and rural areas. “The assumption that everyone in rural India owns their dwelling isn’t entirely accurate."
“The new proposed series will likely have expanded sample and sectoral coverage, improved data frequency and will likely reduce housing sector discrepancies," said Madhavi Arora, chief economist at Emkay Global. “This will also prevent the pay commission–related housing sector spike as well. All of this should improve the robustness of the new series and capture the inflation undercurrents better," she added.
Sabnavis said data on rents can easily be sourced from housing boards and registration offices. “Since housing forms a substantial part of household expenditure, it’s important that we capture its costs more accurately. The proposed revision is pragmatic and timely."
By expanding coverage and focusing on genuine market rents, the government aims to better capture the lived reality of Indian households—particularly as housing becomes the single largest monthly expense for many families.
What this means for inflation and policy
Housing accounts for about one-fifth of India’s urban CPI basket and roughly 10% of the all-India index, making it one of the most influential components in determining headline inflation. A more accurate gauge of rent inflation could therefore shift how the overall CPI is read and interpreted.
If the revised methodology shows higher rental inflation than previously estimated, it could push up headline inflation and complicate the Reserve Bank of India’s (RBI’s) path to rate cuts. Conversely, more timely data could also help policymakers distinguish between transient and structural pressures on prices, enabling better-calibrated monetary responses.
For the government, a more precise index could strengthen welfare design and wage indexation, helping assess whether income growth is keeping pace with the cost of living. It also adds credibility to official statistics at a time when trust in data has become a sensitive political issue.
How the new system will work
The ministry’s updated framework, developed in consultation with experts from the International Monetary Fund (IMF), will significantly widen the sample base. Rent data will now be collected monthly from all selected dwellings instead of a limited subset, producing a richer and more continuous dataset.
A notable innovation is the inclusion of “imputed rent" for owner-occupied homes in rural areas, derived from the latest Household Consumption Expenditure Survey (HCES) 2023-24. This ensures the index reflects the full housing spectrum, not just rentals in cities.
What happens next
MoSPI has invited public comments on the draft methodology until November 20 before finalizing it as part of the CPI base revision due in February. The overhaul will also revisit how free food distributed under the public distribution system is treated in the inflation basket.
If implemented as planned, the new CPI could provide a sharper, more realistic picture of India’s economic health–one that captures both the evolving housing market and the broader experience of inflation in a rapidly urbanizing country.
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