Context
The Ministry of Statistics and Programme Implementation (MoSPI) has proposed a new Consumer Price Index (CPI) series that will, for the first time, measure rural housing inflation and exclude employer-provided dwellings to make the housing index more accurate and representative.
About CPI
- The Consumer Price Index (CPI) shows the change in prices of goods and services that households usually buy — it measures inflation (rise in general price levels).
- It is prepared by the National Statistical Office (NSO) under MoSPI.
- CPI is important because:
- It is used by the RBI to set interest rates (under its 4% ± 2% inflation target).
- It helps measure cost of living and is used for wage and pension adjustments.
- Current base year: 2012 (base year = reference year for comparison).
- CPI has separate indices for rural, urban, and combined
- In the current CPI, “Housing” has a weight of 67% in urban areas and 10.07% at the national level.
What is Changing? (Key Features of the New CPI Approach)
| Parameter | Existing | Proposed (New CPI) |
| Coverage | Only urban areas | Both urban & rural areas |
| Sample size | 12 dwellings per market (urban only) | Urban – 12 dwellings/market; Rural – 6 dwellings/market |
| Employer accommodation | Included | Excluded |
| Methodology | 3 different methods for different periods | One uniform method – “Short index” or “Chain index” |
| Source for dwelling weights | NSS 69th Round (Housing Condition Survey) | Census 2011 |
| Data frequency | Collected every 6 months (urban only) | Collected monthly (urban & rural) |
Short Index / Chain Index: These methods update price changes regularly by linking new data to the previous month’s data, making inflation estimates more current and reliable.
Need for Change
- Earlier, CPI covered only urban housing, leaving out the rising rural housing market.
- Employer-provided dwellings (like government housing) were distorting data since rents were based on House Rent Allowance (HRA), not actual market rent.
- The new Household Consumption Expenditure Survey (HCES 2023–24) has now collected rural rent data, making it possible to include rural areas.
- The change aims to make the CPI more realistic, data-driven, and closer to international best practices (as advised by IMF experts).
Significance
- More Accurate Data: Reflects true rental trends in both cities and villages.
- Better Policy Decisions: Helps RBI and government design policies using more reliable inflation data.
- Improved Welfare Planning: Assists in assessing cost of living for rural households and improving schemes like PMAY (housing) or MGNREGS (wages).
- Global Standards: Brings India’s CPI method in line with UN and IMF recommendations.
Challenges and Way Forward
| Challenges | Way Forward |
| Collecting accurate rent data in rural areas where few houses are rented | Use regular household surveys and tech tools (mobile data apps, GIS mapping) |
| Excluding employer housing may understate true inflation for some groups | Develop a separate sub-index for such dwellings |
| New and old CPI data may not be directly comparable | Run parallel series for a few months to ensure smooth transition |
| Dependence on older data sources like Census 2011 | Update using newer surveys or Census when available |
| Limited field staff and coordination at NSO level | Provide training and digital tools to field teams |
Conclusion
The new CPI will give a clearer and fairer picture of housing inflation, especially in rural India. Ensuring accurate data collection and transparency will be key to making it a reliable inflation measure.
| Ensure IAS Mains Question Q. Discuss the rationale and significance of the proposed inclusion of rural housing inflation in India’s new Consumer Price Index (CPI) series. How will this revision improve the quality of inflation measurement and policymaking? (250 words) |
| Ensure IAS Prelims Question Q. Consider the following statements regarding the proposed changes in the Consumer Price Index (CPI) housing index in India: 1. The new CPI will include housing inflation data for both rural and urban areas. 2. Employer-provided dwellings will continue to be included in the housing index. 3. The new methodology will use a single “chain index” or “short index” approach for all periods. Which of the statements given above is/are correct? a) 1 only b) 1 and 3 only c) 2 and 3 only d) 1, 2 and 3 Answer: b) 1 and 3 only Explanation: Statement 1 is correct: The new CPI aims to include housing inflation for both rural and urban areas, giving a more realistic picture of living costs across India. Statement 2 is incorrect: The new methodology will exclude employer-provided dwellings since these do not involve any actual rent payment and can distort inflation estimates. Statement 3 is correct: The revision proposes using a single chain (short) index, meaning inflation will be measured by linking new data to the previous period for better accuracy and continuity. |
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