India's new Consumer Price Index (CPI) inflation series could be a combination of the results of the 2022-23 and 2023-24 Household Consumer Expenditure Surveys (HCES), according to people aware of developments.
On February 24, the Ministry of Statistics and Programme Implementation published a 'fact sheet' on the findings of the 2022-23 (August-July) survey, with the detailed report to be released "subsequently". But with the ministry currently conducting the 2023-24 HCES, set to be completed in July 2024, the groundwork to update the badly-outdated CPI inflation series is far from done.
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It is understood that once the second survey is also completed, an exercise will first be carried out where all options will be examined: a new CPI series based on the 2022-23 survey, another on the 2023-24 survey, and a third on the basis of a weighted average of the two surveys.
"It is also possible the results of the second survey could be ignored," a government source said.
In a break from tradition, the government is conducting back-to-back HCES due to the changes made to the survey's questionnaire, which has been split into three to make it less bulky and time-consuming for respondents to answer in one sitting.
With the fact sheet of the 2022-23 HCES having been released, it is possible that the results of the first quarter of the ongoing survey have been compared with those of the corresponding quarter of the first survey and there may not have been much deviation between the two.
The government had controversially junked the 2017-18 HCES citing data quality issues after Business Standard reported in November 2019 that the draft report of the survey found consumer spending had fallen.
The results of the survey provide a breakdown of how much households spend on various goods and services. Depending on the proportion of the monthly expenditure on each item, the weights of these items in the CPI basket are decided. The current CPI basket is based on the results of the 2011-12 (July-June) HCES.
Updating the basket is key as consumption patterns change over a period of time, with the 2022-23 survey showing lower weightage for food compared to 2011-12. As per the fact sheet, the weight of food items in monthly per capita consumption expenditure had declined to 46.38 percent for rural India in 2022-23 from 52.90 percent in 2011-12 and to 39.17 percent for urban from 42.62 percent.
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A reduced weight for food in the CPI could bring down the headline inflation number and make the data less volatile, ensuring better forecasting, which is crucial as the Reserve Bank of India's (RBI) inflation target of 4 percent in a range of 2-6 percent is in terms of the CPI.
No change in 2026 timeline
Once the exercise on the three aforementioned scenarios is complete, it will be presented to the expert group on the base revision of the CPI. After the expert group gives its recommendations, the next step will involve the Technical Advisory Committee on Statistics of Prices and Cost of Living (TAC-SPCL), which guides the statistics ministry on inflation measures.
Given the length of deliberations that could occur among the two sets of experts, the new CPI series may finally be launched only in 2026, as Moneycontrol had reported back in April 2023.
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According to a member of the TAC-SPCL, there should not be huge differences between their committee and the expert group over the revision of the CPI.
"There could be some peripheral issues. Otherwise, on the critical issues, there should be a consensus," the member said, on condition of anonymity.
The expert group may meet next month.
No annual survey?
While there have been media reports in recent days about conducting the HCES on an annual basis to allow for more frequent updating of the CPI, the persons quoted above think it is unlikely.
"It has been said that developed countries use a chain-based index. We are also trying," the first source said, but went on to add that such an exercise would be difficult in a country as large, complex, and informal as India.
A chain-based CPI would mean inflation is calculated on the basis of prices prevailing in the previous year, and not the 'base' year, which at the moment is 2012. The new CPI series will be based on prices in 2024, the market survey for which is currently on.
"In a largely organised economy, where it is easy to count things such as expenditure, it won't be a problem. But in a country as large and mostly unorganised as India," wondered the source.
There is also a question of resources—in terms of time, money, and personnel—with the National Sample Survey Office also conducting several other surveys.
"Earlier, the HCES was done every five years. But even that has been difficult in recent years. So how can it be done every year? It's a huge survey and takes a lot of manpower. Processing the data itself takes around six months after 12 months of data collection," the first source added.
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The TAC-SPCL member concurred, also arguing that an annual HCES would not contribute much to understanding or policymaking and that conducting it once every three years would be appropriate.
"Consumption weights are unlikely to change much from one year to the next," the person said. "Doing the survey once every three years is fine. Consumption patterns are resilient."
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