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The Reserve Bank of India has kept interest rates unchanged for more than a year, and stuck to a relatively hawkish stance given inflation is above its 4 per cent target | (Photo: PTI)
By Shruti Srivastava
An Indian government panel tasked with revising the nation’s consumer price index is considering a substantial cut in the weighting of food, according to a person familiar with the matter, a move that could curb inflation spikes in the South Asian nation.
The panel, under the statistics ministry, is discussing a proposal to reduce the weight of food in the consumer price basket by as much as 8 percentage points, according to the person, who asked not to be identified as the discussions are private. The food and beverage category makes up 54.2 per cent of the current CPI basket.
The CPI is currently based on consumer spending patterns surveyed in 2011-2012, which economists say are outdated and may be distorting the official inflation data the central bank uses to set interest rates. More recent surveys show consumers are spending less of their budget on food than they did a decade ago. Bloomberg Economics estimates inflation in June was 70 basis points higher than it would have been using new weights.
A spokesman for the Ministry of Statistics and Program Implementation didn’t immediately respond to an emailed request for further information.
The Reserve Bank of India has kept interest rates unchanged for more than a year, and stuck to a relatively hawkish stance given inflation is above its 4 per cent target. Economists surveyed by Bloomberg predict the RBI will likely hold again on Thursday.
Food is a big driver of inflation in India given its high weighting in the CPI basket. In June, food prices rose 9.36 per cent from a year earlier, pushing up the headline inflation rate to 5.08 per cent. Excluding food and energy costs, inflation was 3.15 per cent.
A revision of the CPI, which currently has some 299 items, would see redundant items such as horse cart fares, prices for video cassette recorders, and costs of audio and video cassettes likely weeded out of the calculation. The government panel is also discussing including consumer electronic products, such as smartphones in the updated index, the person said.
The changes to the CPI weights and the base year, which are under consideration now, will likely only be implemented by January 2026. The revisions are based on results of new consumer spending surveys, which the statistics ministry is still finalizing. The entire process is expected to be completed sometime during 2025.
India’s Chief Economic Adviser V Anantha Nageswaran, a top official in the Ministry of Finance, last month argued the central bank’s inflation target should exclude food. Several economists, however, said removing food from the CPI target wasn’t appropriate for a country like India.
First Published: Aug 07 2024 | 10:11 AM IST
