Govt may include e-commerce data, expand coverage to improve calculation of retail inflation

The proposed revisions to the Consumer Price Index include measures such as leveraging modern data collection techniques to source price information from e-commerce platforms, considering only privately rented homes to calculate housing rents and expanding the number of markets covered, according to a recent presentation by the ministry of statistics and programme implementation. 

These changes are aimed at capturing spending patterns accurately across urban and rural regions as part of a larger effort to modernise India’s statistical framework.

Frequent revisions, ideally every five years, are essential, given the rapid shifts in consumption, especially in a developing economy like India, so that it reflects contemporary consumption patterns as far as possible, said former chief statistician T C A Anant.

"The index itself is very good. It's a very modern index. Data collection is done through very modern techniques efficiently," Anant added.

In addition to updating the methodology of calculating retail inflation, the ministry plans to upgrade its data collection process, replacing paper-based surveys with digital tools to enhance accuracy and efficiency. The ministry aims to publish more granular inflation data, enabling deeper insights into regional and demographic trends.

It is working on updating the base year to calculate the gross domestic product and the index of industrial production. While the current base year for these indices is 2011-12, the revised base year for GDP is expected to shift beyond 2015-16, a senior government official had earlier told Mint.

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To this extent, the ministry has been organising brainstorming sessions with key stakeholders, policymakers, economists and statisticians, seeking suggestions and insights.

On Wednesday, it presented its proposals during a session on ‘The Treatment of PDS Items and Other Necessities in Consumer Price Index Compilation,’ which was attended by policymakers including NITI Aayog member Ramesh Chand, chief economic advisor V Anantha Nageswaran and statistics ministry secretary Saurabh Garg, apart from academics, economists and statisticians.

Accuracy, efficiency

By engaging stakeholders and adopting innovative methodologies, the statistics ministry aims to ensure that the revamped CPI provides a more accurate and reliable measure of inflation, supporting better-informed policymaking and economic analysis, a senior government official said on condition of anonymity.

"The base year revision process had been delayed by the pandemic. But now the work is under way," the official added.

During the discussions on the challenges of incorporating free Public Distribution System (PDS) items into CPI calculations, chief economic adviser Anantha Nageswaran underscored the significant role that ration items play in household consumption, calling for an evaluation of international practices and the involvement of a broader panel of experts to arrive at a comprehensive and informed decision.

NITI Aayog member Chand emphasised the importance of analysing how free PDS distribution influences open-market prices. He said careful consideration is needed to decide whether PDS items should be excluded from CPI calculations to ensure the index remains accurate and relevant.

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MoSPI secretary Garg provided insights into the CPI’s scale and methodology, also highlighting regional variations in inflation.

“The CPI aggregates data from approximately 400 items across 1,200 markets," he said. "In Mumbai, forecasters pointed out that housing prices in the 10 major cities reflect very high inflation. However, when you factor in data from tier-one, tier-two and tier-three cities, inflation presents a significantly different and lower figure."

India's inflation metrics need to be updated to reflect evolving economic realities, experts said. The CPI, currently based on 2011-2012 household consumption data, often fails to capture contemporary spending patterns.

Food prices

Food inflation has remained resistant to monetary policy interventions with factors like supply volatility due to the weather and trade restrictions exacerbating the challenge.

The latest data from the ministry showed that retail inflation, as measured by the CPI, accelerated to 6.21% in October from 5.49% in September, marking the highest level since August 2023, when inflation was 6.83%.

Food prices rose 10.87% in October compared with a 9.24% increase in September. This, too, was the highest in 15 months. To be sure, food inflation accounts for nearly half of the consumption basket.

Core inflation, which excludes food and fuel prices, stood at 4% in October, up from 3.8% the previous month,

The inflation figures came just days after the Reserve Bank of India warned of a “very high" reading for the month, though it expects inflation to cool in the coming months as food prices fall. Economists now expect an interest rate cut to get pushed to the first quarter of 2025.

Repo rate conundrum

The RBI has not cut the key repo rate – currently 6.5% – since February 2023.

While food demand is inelastic, interest rate increases primarily compress non-food demand, negatively impacting sectors like domestic manufacturing, Anant said.

“While CPI reflects consumer prices, the Wholesale Price Index for manufactured goods has shown prolonged deflationary pressures, underscoring the need to transition to a Producer Price Index, a global standard," Anant said.

An expert panel has already recommended a roadmap for this shift, he said, adding that fiscal policy, noted for its prudence, has played a critical role in keeping inflation in check.

"The RBI should recalibrate its inflation-targeting framework, incorporating both CPI and PPI to improve effectiveness. This coordinated approach could ensure better management of inflationary trends and support broader economic growth," Anant said.

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Commerce minister Piyush Goyal recently urged the RBI to lower interest rates, saying the use of rate hikes to tackle food price inflation may be flawed.

While the growing disparity between food and non-food inflation serves as an early warning sign of a slowing real economy, which, if left unchecked, could lead to stagflation, a rate cut could help stimulate non-food demand and support economic revival, said Debopam Chaudhuri, chief economist at Piramal Enterprises Ltd.

"Consumer demand has been weakening, and the higher sales seen during the festive season were primarily driven by significant discounts rather than organic growth," Chaudhuri said. “Maintaining policy rates owing to heavy food inflation could impact economic growth adversely. These are extraordinary times, and we may have to allow some slack in monetary policy."