New CPI to measure rural housing inflation, exclude employer-provided dwellings

The Ministry said the proposed changes in the methodology are being done with the objective of making the housing index more “robust and representative”. In the existing CPI, housing has 21.67 per cent weight for urban areas and 10.07 per cent weight at all-India level.

The revision, when implemented, will help gauge the impact of rentals and housing prices on inflation more accurately as inclusion of only urban areas and employer-provided dwellings may not be reflecting the complete ground reality, especially with rentals having surged after the pandemic. Further, the presence of government housing — provided by the Centre, states, and public sector undertakings to their employees — in the current CPI has been an issue flagged by economists for the better part of a decade. For these dwellings, the House Rent Allowance (HRA) is taken as a proxy for rent and used to calculate inflation, which is problematic as the rent — or the HRA in this instance — does not depend on the prevailing market rental rates but on the pay grade of the employee living in them.

The Ministry released the third paper in the series — ‘Discussion paper on the proposed changes in the housing index compilation methodology in the new CPI series’ — as part of its base revision exercise of the CPI after having released two papers earlier on the ‘Treatment of Free Public Distribution System (PDS) Items in CPI Compilation’ in October 2025 and December 2024. Earlier this week, MoSPI Secretary Saurabh Garg had told The Indian Express in an interview that the Ministry plans to bring out discussion papers and hold data conferences to outline the changes and the methodology for the new inflation series to seek comments from stakeholders, with transparency as a key objective.

“In addition to urban expenditure on housing, the HCES (Household Consumption Expenditure Survey) 2023-24 has also captured house rent data for rural areas, including imputed rent for owner-occupied dwellings. Consequently, new series will compile the housing index for both rural and urban sectors. This marks a departure from the current series, which includes only the urban sector, due to the absence of imputed rent data for rural areas in the HCES 2011-12,” the discussion paper stated.

Feedback and comments have been sought on the proposed changes in the housing index compilation methodology and can be sent to psd-nso2020@mospi.gov.in by November 20, it said.

The new housing index will also have an expanded sample coverage by collecting rent data from all selected dwellings each month instead of limiting rent collection to one-sixth of the sample at present. This change is being proposed after discussions with experts from the International Monetary Fund (IMF) to address the issue of panel approach since that approach necessitates a larger sample size to ensure representativeness at the aggregate level, which is not feasible due to the limited availability of rented dwellings in many markets outside major urban centres, the Ministry said.

“During a Technical Assistance Mission on base revision of CPI with IMF Experts, it was advised that since India uses the panel survey approach for the collection of rents, when calculating price change, the price change is based on a comparison of like with like, meaning that panel 1 in M7 is compared with the prices collected in M1. This results in a six-month change. To convert the 6 months change into a one-month change, the 6th root of the change may be calculated. This is then multiplied by the previous period index. Prices for the other panels are not imputed or used. Only the prices of the individual panels are used subject to the condition that each panel is broadly representative of the whole. Carrying forward the prices of the other panels may create a downward bias in the rent index,” the paper stated.

The MoSPI is undertaking the base revision exercise of the CPI and is revisiting methodologies, exploring new data sources and incorporating changes after consultations with experts, users, academicians and other stakeholders.

Housing is seen as a crucial indicator for the overall well-being of the households not only in India but across the world as a significant amount of their income is spent either on house rent or maintaining an owned house, the Ministry said. “Inflation based on house rent index is an important tool not only for the policy and decision makers but also for the households. Therefore, a robust and relevant housing index compilation methodology for capturing its actual movement every month is of utmost importance,” it said.