CPI overhaul: India has decided to overhaul the Consumer Price Index (CPI), the anchor for inflation measurement and monetary policy. The proposed revision sharply lowers the weight of food and beverages from 45.86% to 36.75%, at a moment when food prices dominate both household anxieties and political debate. The official rationale is statistical updating. The harder question is whether the change will be read as technical correction or narrative management.
Household consumption has shifted since the 2011–12 base year. Rising incomes, urbanisation, digital access and the expansion of services have altered spending patterns. Food no longer absorbs the same share of budgets as a decade ago. Communication, transport, health, education, recreation, financial services and digital subscriptions now command a larger slice. An index that ignores this shift risks mis-measurement.
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The proposed revision aligns India’s CPI with the COICOP 2018 classification used internationally. Coverage expands to 358 weighted items, incorporates e-commerce price data, and adopts the Jevons short-chain method for averaging prices. Both the basket and the mathematics are being updated. A service-heavy, digitally intermediated economy cannot be tracked accurately using an outdated template.
CPI overhaul: Measured inflation versus lived inflation
Inflation, however, is not experienced as a statistical construct. For a large share of households—especially in rural India and the urban informal sector—food prices dominate perceptions of economic stress. This is not incidental. Rural CPI continues to carry a materially higher food weight than urban CPI, and price shocks to staples, vegetables and milk register far more sharply outside metropolitan consumption baskets. Vegetable spikes are immediate and visceral. Increases in mobile tariffs or streaming subscriptions are absorbed more gradually. Sharply lowering food’s weight therefore risks widening the gap between measured inflation and lived inflation, particularly across the rural–urban divide.
This matters because CPI is not merely descriptive. It anchors India’s inflation-targeting framework. The Reserve Bank of India’s 4% target is defined in CPI terms. With a smaller food weight, headline inflation becomes mechanically less sensitive to monsoon shocks, supply disruptions and seasonal volatility. In months of food stress, the new series is likely to print lower inflation than the old one. Conversely, when food prices are benign but services inflation is sticky, the index could appear firmer.
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Monetary policy and fiscal spillovers
The revision does not eliminate inflation pressures. It redistributes them. A lower food weight may smooth headline numbers and reduce the frequency of breaches of the RBI’s tolerance band. That, in turn, eases political pressure on the government, which has repeatedly had to respond to food-led inflation with ad-hoc tools—fuel tax adjustments, export curbs, buffer stock releases and import-duty tweaks.
CPI also feeds directly into dearness allowance revisions, pensions, welfare indexation and other fiscal commitments. A reweighted index that dampens food volatility can therefore moderate expenditure growth mechanically, even if household stress remains elevated. This fiscal channel reinforces the political economy of the revision, independent of monetary policy considerations.
For households, the distinction is academic. If cereals, pulses, vegetables and milk remain expensive, a statistical reweighting will not alter kitchen budgets. There is a risk that the CPI itself becomes suspect, seen less as a mirror of reality and more as an instrument that understates it.
India’s food inflation is rooted in structural weaknesses: fragmented supply chains, storage bottlenecks, climate variability, policy-driven cropping distortions and the unresolved tension between farm support and consumer prices. A CPI that downplays food does nothing to resolve these constraints. If anything, it may dull the urgency of investing in agricultural logistics, market reform and climate-resilient farming—saving on optics while losing on substance.
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A different burden for the RBI
The RBI has long struggled with how to respond to food shocks that are supply-driven and often transient. A lower food weight reduces the likelihood that such shocks push headline inflation far above target, easing pressure on the central bank to react to vegetable price spikes. But the trade-off is sharper exposure to services inflation, which is more persistent and wage-sensitive. If education, health, transport and communication costs keep inflation sticky, monetary policy does not become easier—only different. The scope for aggressive rate cuts during growth slowdowns may narrow.
There is also a transition risk. Base revisions test statistical credibility, particularly if households and markets struggle to reconcile old and new series. Without careful parallel publication and clear communication, scepticism about official inflation data could deepen during the handover period.
The CPI revision reflects a changing economy, but it also reshapes the political economy of inflation. It improves international comparability, but at the cost of sharper domestic dissonance in a food-sensitive society. It may deliver smoother headline numbers and greater framework stability. It cannot erase the fact that food still dominates the anxieties of millions. Without parallel, visible supply-side reform, the statistical fix risks breeding scepticism rather than credibility.