The revision of the CPI basket doesn’t merely refine how inflation is measured but additionally not directly captures how Indian households are spending in a different way than they did a decade in the past. Probably the most placing sign is the decreased weight assigned to meals and the better emphasis on companies, housing and trendy consumption classes resembling OTT. This shift, from roti to OTT, so to talk, displays an economic system in transition from subsistence-heavy spending towards extra diversified and discretionary consumption.
Why the CPI basket wanted a reset
Inflation measurement relies on precisely reflecting what households purchase and the way a lot they spend on every class. When the construction of consumption modifications, the index should evolve accordingly. The earlier CPI basket was anchored in 2011-12 expenditure patterns, a interval earlier than the speedy growth of digital companies, organised retail, app-based transport, streaming platforms and newer gasoline codecs like CNG and PNG.
The revised collection updates the bottom 12 months to 2024 and incorporates expanded information sources, together with digital and administrative information. For the primary time, rural home lease has been included, and the housing pattern dimension has been strengthened in each rural and concrete areas. Costs from e-commerce platforms at the moment are factored into the index. Objects resembling OTT subscriptions, airfares and telecom plans are formally tracked. On the similar time, outdated gadgets like VCRs, cassette gamers and coir rope have been eliminated.
These changes enhance statistical accuracy. However in addition they mirror a society the place digital media subscriptions coexist with conventional staples, and the place consumption baskets more and more mirror trendy existence.
Meals: A structural shiftProbably the most consequential change within the revised CPI is the sharp discount within the weight of meals, from roughly 46% earlier to round 37%. Meals nonetheless stays the only largest element of the CPI basket, and at 37%, it continues to exert substantial affect over headline inflation. Nonetheless, the decline in its share is economically vital.
Meals costs are usually risky, influenced by monsoons, provide disruptions and international commodity traits. A decrease weight for meals could cut back headline inflation volatility and supply a smoother outlook for financial coverage. However the deeper implication lies in what this weight discount represents.
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Inflation baskets are derived from family consumption surveys. If the share of meals within the CPI has declined, it means households are allocating a smaller proportion of their whole expenditure to meals. This doesn’t indicate that meals spending has fallen in absolute phrases. Moderately, different classes are rising quicker.
This sample aligns with a well-established financial precept: as incomes rise, the proportion of revenue spent on meals declines. Even when households spend more cash on meals, meals occupies a smaller slice of the overall consumption pie. The revised CPI construction successfully acknowledges that India is shifting alongside this developmental trajectory.
Proof from the Family Consumption Expenditure Survey
The Family Consumption Expenditure Survey information underscores this transformation. In rural India, common Month-to-month Per Capita Consumption Expenditure (MPCE) rose from Rs 1,430 in 2011-12 to Rs 3,773 in 2022-23. In city India, it elevated from Rs 2,630 to Rs 6,459 over the identical interval. Family consumption has greater than doubled in nominal phrases inside a decade.
Equally vital is the shift in spending composition. In rural areas, the share of expenditure dedicated to meals declined from 52.9% in 2011-12 to 46.38% in 2022-23. In city areas, the share fell from 42.62% to 39.17%.
These numbers affirm two simultaneous traits. First, consumption ranges are rising considerably. Second, the relative significance of meals in family budgets is step by step diminishing. Households are spending a bigger share on non-food gadgets resembling clothes, transport, housing, healthcare, schooling and leisure.
The CPI revision merely aligns inflation measurement with this new consumption story. The basket now displays what individuals truly purchase somewhat than what they purchased over a decade in the past.
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The rise of companies and trendy consumption
The up to date CPI basket’s inclusion of rural housing, streaming companies, digital storage units, value-added dairy services and products resembling babysitting displays broad-based modifications in way of life and aspirations. The addition of rural home lease is especially vital, because it acknowledges monetisation and formalisation traits in rural housing markets.
Equally, incorporating on-line media subscriptions and digital companies captures the speedy growth of India’s digital economic system. Telecom plans, OTT platforms and air journey are not area of interest expenditures restricted to a small elite. Their presence within the CPI basket signifies that they now represent significant elements of family spending.
This shift towards companies is attribute of economies transitioning from lower-middle-income to middle-income standing. As incomes rise, households transfer past fundamental requirements towards consolation, comfort and experience-driven spending.
Meals nonetheless issues but it surely not dominates
Whereas the narrative of maturing consumption is compelling, it is necessary to not overstate the shift. At roughly 37% of the CPI basket, meals stays a dominant driver of inflation. In a rustic with vital rural and low-income populations, meals safety and value stability stay central coverage issues.
Furthermore, meals inflation can nonetheless exert outsized psychological and political influence. Even with a decreased weight, spikes in meals costs will meaningfully affect headline inflation and family welfare.
What has modified is just not the significance of meals in absolute phrases, however its relative dominance. The CPI not portrays India as an economic system the place practically half of family expenditure is tied to meals. As a substitute, it displays a extra balanced distribution throughout classes.
The January 2026 CPI revision underscores that India’s consumption story is each increasing and diversifying. Family spending has grown considerably over the previous decade, and the composition of that spending has shifted away from meals towards housing, companies and trendy items.
The CPI rejig is technical in design but additionally tells a narrative. By updating how inflation is measured, it reveals how India is altering its spending patterns.
