India Proposes Including Rural Housing in CPI, Sets 2024 as New Base Year

The Ministry of Statistics in India has put forth a proposal to enhance the accuracy and comprehensiveness of the Consumer Price Index (CPI) by including housing expenditure data from rural areas. This marks a substantial departure from the current CPI series, which only accounts for urban housing costs.

New Base Year and Launch: The revised CPI series will adopt 2024 as its base year, replacing the existing 2012-based series. This new series is anticipated to be rolled out in the first quarter of 2026. The weights and item basket for this revised index will be determined by the data collected during the Household Consumption Expenditure Survey (HCES) conducted in 2023-24.

Housing Index Expansion: The housing index is a critical component of CPI, representing a significant portion of consumer expenditure (21.67% for urban areas and 10.07% overall in the current series). The current series lacks rural housing cost data because previous surveys, like the HCES 2011-12, did not capture imputed rent for rural owner-occupied homes. However, the HCES 2023-24 has rectified this by collecting house rent data, including imputed rent, for rural areas.

Data Collection and Exclusions: To ensure representativeness, rent data will be collected from 12 dwellings in urban markets and 6 dwellings in selected villages. In an effort to eliminate distortions caused by non-market transactions, government accommodations and employer-provided dwellings will be excluded from the housing index calculation, ensuring it reflects genuine rental market prices. The classification of dwellings based on the number of rooms and their respective weights will remain consistent with Census 2011 data proportions.

Objective: The ministry stated that these methodological changes are aimed at making the housing index more robust and reflective of actual consumer spending patterns.

Impact: This revision will lead to a more precise measurement of inflation across India, encompassing both rural and urban populations. A more accurate CPI could influence monetary policy decisions by the Reserve Bank of India and provide investors with a clearer picture of economic conditions, potentially affecting market sentiment and investment strategies. The inclusion of rural housing costs will give a broader perspective on household expenditure. Impact rating: 8/10

Difficult Terms: * Consumer Price Index (CPI): A measure that examines the weighted average of prices of a basket of consumer goods and services, such as transportation, food, and medical care. It is calculated through surveys of prices of thousands of items. * Housing Index: A component of the CPI that tracks changes in the cost of housing, including rent and other related expenses. * Imputed Rent: An estimated rental value assigned to owner-occupied housing units, which are not directly rented but represent a cost to the owner (the cost of alternative use of capital tied up in the house). * Household Consumption Expenditure Survey (HCES): A survey conducted periodically by the government to collect data on the spending patterns of households, used for revising economic indicators like CPI and poverty lines. * Weightage: The relative importance assigned to different items or components within an index, reflecting their share in total expenditure or economic activity. * Weighing Diagram: The structure that defines the weights assigned to various components within an index.