India's Consumer Price Index Undergoes Major Transformation with 2024 Base Year
India's Consumer Price Index (CPI), the primary measure of retail inflation, is undergoing its most significant transformation in over a decade. The statistics ministry has officially rolled out a revised CPI series with a new 2024 base year, replacing the outdated 2012 base year that has measured inflation for more than twelve years. This comprehensive overhaul updates both the base year and methodology to accurately reflect contemporary household spending patterns, utilizing data from the Household Consumption Expenditure Survey conducted during 2023–24.
Fundamental Recalibration of Spending Weights
At the core of this CPI transformation lies a substantial recalibration of weights across various spending categories. The most consequential change involves the reduced weight of food and beverages, which has decreased significantly to 36.8% of the CPI basket from the previous 45.9%. Within this category, food alone has dropped from 39.1% to 34.8%. This substantial decline reflects evolving consumption patterns as rising incomes typically lead to faster growth in discretionary spending compared to essential food items. Additionally, certain items like prepared meals have been reclassified out of the food basket entirely.
This weight reduction matters profoundly because food prices represent some of the most volatile components within CPI calculations. A lower food weight can materially alter headline inflation readings, potentially making them more stable. Simultaneously, higher weights for services and miscellaneous items mean that inflation in housing, transportation, healthcare, and personal services will now exert greater influence on the overall inflation number. Based purely on weight adjustments, economists estimate that CPI inflation for January 2026 could register around 3%—approximately 50 to 80 basis points higher than what the old series might have indicated.
Modernizing Inflation Measurement for a Digital Economy
The revised CPI marks a decisive shift toward capturing India's increasingly digital and services-led economy. For the first time in the nation's inflation measurement history, online prices are formally incorporated into the calculation framework. Airfares, OTT subscriptions, telecom plans, and select services are now tracked directly through digital platforms. To comprehensively capture e-commerce pricing dynamics, twelve dedicated online markets have been added in major metropolitan areas.
For items with centralized or regulated pricing—including fuel, rail fares, electricity, and telecommunications—data now comes directly from administrative sources, substantially improving consistency and reliability. On the ground, data collection has transitioned to tablet-based, geo-tagged systems featuring built-in real-time validation and supervisory dashboards. These technological upgrades collectively reduce delays, enhance data quality, and make inflation measurement more timely and transparent than ever before.
Expanded Coverage and Enhanced Granularity
The CPI 2024 series significantly expands both the scale and granularity of price collection across India. Rural coverage now spans 1,465 villages across 686 districts, representing a substantial increase from the previous 1,181 villages and 582 districts. Urban coverage has similarly expanded to 1,395 markets in 434 towns, up from 1,114 markets in 310 towns. The consumption basket itself has widened considerably, now tracking 308 goods (increased from 259) and 50 services (up from 40).
These items are organized into a far more detailed structural framework comprising twelve divisions, forty-three groups, ninety-two classes, and 162 sub-classes—a dramatic improvement over the previous system that featured just six groups and twenty-three sub-groups. Importantly, the new CPI will release item-level indices separately for rural and urban areas at the state level, enabling more granular analysis of regional price pressures and disparities.
Structural Upgrades and International Alignment
One of the most significant structural improvements involves the adoption of the Classification of Individual Consumption According to Purpose (COICOP 2018), a United Nations-endorsed global standard for grouping household expenditure. This alignment brings India's inflation framework closer to international practices and substantially improves cross-country comparability. Since the Household Consumption Expenditure Survey 2023–24 was not originally mapped to COICOP, numerous items have undergone careful reclassification.
Clothing and footwear, which were not gender-differentiated in the original survey, are now split into men's, women's, and children's categories using demographic data from Census 2011. Tuition fees have been broken down into primary, secondary, and higher education segments based on enrollment data from UDISE and the All India Survey on Higher Education conducted during 2021–22.
Addressing Long-Standing Methodological Issues
The revised series successfully addresses several persistent methodological concerns that have plagued previous inflation measurements. A crucial improvement relates to the treatment of free items and missing prices. Under the old series, when Public Distribution System items such as rice and wheat were made free under government welfare schemes, their weights were redistributed to other items—artificially skewing inflation readings. In the new CPI, free social transfers are excluded entirely, recognizing them as government transfers rather than household consumption.
Missing prices are now handled through a standardized imputation framework instead of weight redistribution, making month-on-month inflation prints more stable and reliable. The consumption basket has also been cleaned up to remove obsolete items such as VCRs, typewriters, and cassette players, ensuring the index better reflects current household expenditure patterns in modern India.
Persisting Concerns and Unresolved Questions
Despite these comprehensive improvements, certain concerns persist regarding the new CPI framework. Most notably, questions remain around housing inflation measurement. While the housing index has been expanded to cover both rural and urban areas and now excludes employer-provided accommodation, doubts persist about whether it accurately captures on-ground realities, particularly in major metropolitan areas.
"On the 2012 base year series, housing inflation hovers near historical lows, which contradicts anecdotal data of rising rents in metros and cities," noted Gaura Sen Gupta, chief economist at IDFC First Bank.
Another concern involves weight distribution dynamics. While housing's overall weight has increased from approximately 9% to 12%, this includes the addition of rural housing where rental inflation tends to be significantly lower, potentially depressing the consolidated housing inflation figure. Similarly, questions remain about how effectively the health component captures actual healthcare costs, though specific methodological changes in this area have not been publicly detailed.
This CPI overhaul represents India's most significant step toward modernizing inflation measurement in over a decade, providing policymakers, economists, and citizens with more accurate data reflecting contemporary economic realities.
