Experts to advise if free food comes under CPI

The ministry of statistics and programme implementation has put out a discussion paper, seeking views from experts on how to “treat” free ration under the public distribution system or PDS, which comprises a network of 500,000 far-price shops.

NEW DELHI The government wants to know whether free food distributed to nearly 800 million beneficiaries under the National Food Security Act 2013 should be kept out of inflation calculation, as it is in the process of creating a new, updated consumer price index (CPI), the gauge that measures changes in retail prices.

The ministry of statistics and programme implementation has put out a discussion paper, seeking views from experts on how to “treat” free ration under the public distribution system or PDS, which comprises a network of 500,000 far-price shops. (Bloomberg)

The ministry of statistics and programme implementation has put out a discussion paper, seeking views from experts on how to “treat” free ration under the public distribution system or PDS, which comprises a network of 500,000 far-price shops.

“After the launch of the Household Consumption Expenditure Survey (HCES) 2022-23, MoSPI decided to revise the CPI base year from 2012 to 2024. The base revision exercise is under progress,” the paper said, seeking views from experts, economists and academicians on how to account for free PDS items. The last date for submission of expert opinions is January 15.

The CPI overhaul is designed to track changes in general retail prices of common goods and services more accurately, given fast-changing consumption patterns. PDS ration, a lifeline for those below and slightly above the poverty line, was earlier heavily subsidised.

The beneficiaries, who make up two-thirds of the country’s population, had to still pay nominal prices of ₹3 for a kg of rice, ₹2 for a kg of wheat and Re 1 for coarse grains. From 2023 onwards, the government started giving grains free of cost. Since 2021, India has witnessed elevated food prices, mainly due to weather shocks, stoking overall inflation.

According to experts, the current CPI model has become outdated because of two key reasons. One, the current CPI is indexed to 2012, the so-called base year, which is over a decade old. The base year acts as a reference point to calculate a rise and fall in prices. This is being updated to 2024, an official said, requesting anonymity.

Two, consumption-spending patterns of households have changed since 2012, with consumers generally spending less on food as a proportion of their overall expenditure. The food and beverage category currently makes up 54.2% of the current CPI basket.

“We need a clear concept on how to account for free social transfers such as food in the new CPI measure,” the official said.

According to the IMF’s guidelines, CPI should be “confined to final consumption expenditure incurred by households, in which case free social transfers in kind would be excluded from the scope of the index”.

“As the IMF recommends, the scope of the inflation calculation should be restricted to monetary transactions only,” said Arihant Vajpai of Gokhale Institute of Politics and Economics.