Government is planning to reduce the weightage of food items in the consumer price index (CPI) basket by 6.5 percentage points in rural areas and 3.4 percentage points in urban areas and revise the base year of the inflation series to deal with the rising inflation, as reported by Economic Times. The move follows a look into the Household Consumption Expenditure Survey (HCES) 2022–23 which suggests a decline in the spending on food items.
While the exercise to change the base year is expected to be completed by the end of the current year, the new CPI basket is anticipated to be rolled out by FY26, officials told ET.
The CPI was revised in 2011–12 last. At present, the weightage of food and beverages is 45.9 per cent in CPI, with over 120 food items included. It is 36.3 per cent in urban areas and 54.2 per cent in rural areas.
There have been calls for reducing the weightage of food items from the inflation baskets since a long time, with the 2023–24 Economic Survey suggesting the same. Its author Chief Economic Adviser V Anantha Nageswaran cited volatile food prices as a primary driver of inflation spikes. Removing highly volatile commodities like tomatoes, onions and potatoes could lower retail inflation to 4.2 per cent in October, he had said earlier.
Surging Food Inflation
Food inflation surged to a 15-month high of 10.9 per cent in the month of October, driving an increase in retail inflation to a 14-month high of 6.2 per cent. The monetary policy committee's inflation target is set at 4 per cent (+/-2).
The Reserve Bank of India has kept interest rates unchanged amid rising inflation but has been facing calls for reduction in rates to bolster growth. The repo rate has been kept steady at 6.5 per cent since February 2023. RBI Governor Shaktikanta Das recently cautioned that a rate cut would be “very risky”.
Opposition's Criticism
The opposition has criticised the proposed exclusion of food items from the CPI basket, with Congress leader Jairam Ramesh terming it a “cruel joke” and accusing the government of manipulating data instead of addressing food price volatility.
"The prime minister's entire focus is not on reducing inflation, but on showing low inflation figures. The government is now concertedly attempting to manipulate the Consumer Price Index (CPI) and Wholesale Price Index (WPI) figures to show inflation as being under control, even as the ground reality is that the common man is facing non-stop price rise," Ramesh said in a statement.
