Opinion New data sources and a fresh economic calibration
Reweighting items of consumption based on latest data could impact headline inflation and possibly have policy implications
Reweighting items of consumption based on latest data could impact headline inflation and possibly have policy implications
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The government periodically revises the base year for key economic indicators such as the consumer price index (CPI), the index of industrial production (IIP) and gross domestic product (GDP). These revisions are meant to reflect the changing profile of consumption and production in the country and incorporate newer data sources. For instance, in 2015, the Ministry of Statistics and Programme Implementation released the new series of national accounts, revising the base year from 2004-05 to 2011-12. Also in 2015, the base year for CPI was revised to 2012 from 2010. And in May 2017, the base year for the IIP was revised from 2004-05 to 2011-12. Continuing with this practice, the next year is likely to witness the release of new data series for several indicators.
In an interview to this paper, MoSPI secretary Saurabh Garg has said that the new GDP series, with 2022-23 as the base year, is scheduled to be released on February 27, 2026. The new IIP series, with 2022-23 as the likely base, is expected to be released from 2026-27 onwards, and the CPI series, with the base year of 2024, is likely to be released from the first quarter of 2026. This exercise is likely to involve the use of several new datasets. For instance, in the computation of the GDP estimates, the use of GST and UPI transaction data is being explored. Neither dataset was available the last time around.
Similarly, for the new CPI series, MoSPI is exploring new data sources such as online platforms for air and rail fare and price data from e-commerce websites. For CPI, the government has now decided to draw on the latest round of the Household Consumption Expenditure Survey of 2023-24 to figure out the items and the weights. Such regular updation of economic indicators using newer sources of information not only helps to improve their accuracy but also aids policymaking.
For instance, the current base year for CPI, which forms the basis of the RBI’s inflation-targeting framework, is 2012. But the household consumption basket has changed dramatically over the years. For example, cereals accounted for 10.69 per cent of the consumption basket in rural areas in 2011-12. This had declined to 4.97 per cent by 2023-24. For urban areas, the comparable estimates are 6.61 per cent and 3.74 per cent. Reweighting the items of consumption based on the latest data could thus impact headline inflation and possibly have policy implications.
These base year revisions are, however, not without controversy. For instance, the release of the GDP 2011-12 series was followed by questions over whether it captured the state of the economy accurately. Questions were raised over the quality of some of the data as well as the deflators used. To avoid a repeat, the government should ensure that all the data sources, along with a detailed account of the methodologies used in the process, are publicly disclosed. This could help users understand the estimation process and address concerns.
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