Govt aims to adopt new base year for IIP, CPI by 2026-27: Official

CPI

The government is aiming to adopt a revised base year for both the Consumer Price Index (CPI) and the Index of Industrial Production (IIP) in two years, a senior government official said on condition of anonymity.

“The government will shift to the new base year for IIP and CPI in two years, by 2026-27. This has been delayed due to the pandemic and the delayed consumer expenditure survey,” the official told Moneycontrol.

The Advisory Committee on National Accounts (ACNAS), which will deliberate upon the methodology for the base year change, will soon be reconstituted.

Currently both the CPI and IIP use 2011-12 as the base year.

The consumer expenditure survey was delayed due to the pandemic, and its initial findings were released in February 2024.

Why update the base year?

Comparison over time: it allows for meaningful comparisons of price levels, inflation rates, and industrial output over different periods. The base year serves as a reference point against which changes in subsequent years are measured.

Policy formulation: governments, central banks, and policymakers use data to formulate and adjust monetary and fiscal policies, industrial policies, investment strategies, and economic development plans based on these indices. By understanding how prices are changing relative to the base year, policymakers can make informed decisions to stabilise the economy, control inflation, and ensure economic growth.

Indexation: many financial contracts, wages, pensions, and social benefits are indexed to inflation using CPI data. The choice of base year directly affects the calculation of these index-linked payments and adjustments. Therefore, updating the base year ensures that indexation remains relevant and accurate over time.

Resource allocation: Businesses, investors, and consumers use CPI data to make decisions about resource allocation, investment strategies, pricing, and consumption patterns. An up-to-date base year provides more accurate information for these decisions, leading to more efficient resource allocation in the economy.

International comparability: Updating the base year ensures that CPI data remains comparable with international standards and practices. This comparability is essential for assessing a country's economic performance relative to other nations, and for international trade and investment decisions.

Sectoral analysis: The IIP covers various sectors of industrial activity, including manufacturing, mining, and electricity generation. Updating the base year ensures that the weightage assigned to each sector reflects its current importance in the economy. This allows for more accurate sectoral analysis and identification of emerging trends and challenges.