Inclusion of e-tail can trim CPI by 25bps: SBI Research

With e-retail market on boom, there is a need to include prices offered by such players while calculating retail inflation as rising online shopping, normally driven by heavy discounts, may be understating the actual price index by as much as 0.25 percent, says a report. According to an SBI Research report, the e-retailing, which comprises online retail and online marketplaces, has become the fastest-growing segment in the larger market having grown at a CAGR of around 56 percent during 2009-14. The e-retail market was around USD 6 billion in 2015.

"Our research indicates that only by considering the discount prices and that too for a select group of products, CPI inflation would be at least 25 bps lower that the actual CPI numbers," SBI Research said in its Ecowrap report. According to the report, CPI inflation numbers may be understating due to a variety of inflation estimation biases, of which e-commerce is one of the reasons. "A potential source of bias can arise when shifts to lower price discount outlets are inadequately reflected," the report said.

Books, apparel and accessories and electronics are the largest selling products on the online retailing platforms, constituting around 80 percent of the volume. "The increasing use of smartphones, tablets and broadband and 3G/4G has led to developing a strong consumer base which is likely to increase further. So, there is a need to include the prices charged by the e-retailers like Flipkart, Snapdeal, Amazon etc, while calculating the CPI index, and if done so there may be a downward bias," it said.

According to the minutes of the RBI's Technical Advisory Committee (TAC) held before the September 29 policy, "vendors engaged in e-commerce offering low prices, retail inflation may be lower than what the headline number suggests".