A critical new report has raised serious concerns about the Indian government's proposed changes to how housing inflation data is collected, arguing that the plan risks discarding a fundamentally sound system to fix what is essentially an implementation issue.
Diagnosing the Problem: Implementation vs. Design
The report, authored by Praggya Das, former adviser-in-charge at the RBI's monetary policy department, and Ashish Das, a professor of mathematics, takes aim at the Ministry of Statistics and Programme Implementation's (MoSPI) diagnosis of flaws in the Consumer Price Index (CPI) for housing. The issue is significant because housing carries a substantial weight of 21.67% in the urban CPI and over 10% at the all-India level, directly influencing monetary policy decisions.
The authors acknowledge that distortions have occurred in housing inflation measurement. However, they contend these stem from how the system is implemented, not from a flaw in the underlying statistical framework. Their critique centers on the government's plan to shift from a panel-based survey method to conducting monthly rent surveys for all dwellings.
The Core Weakness: Rent Imputation Method
The report identifies the method of rent imputation as the primary source of past distortions. Traditionally, the CPI did not use actual market rents for a large segment. Instead, it relied on the House Rent Allowance (HRA) forgone by employees living in government or employer-provided housing. This made the inflation index sensitive to administrative pay decisions rather than true market movements.
For instance, the implementation of the 7th Pay Commission's recommendations, which raised government salaries, mechanically pushed up the measured rent inflation. Conversely, routine employee transfers could make recorded rents appear to fall even when market rents remained stable.
Disputing the Proposed "Drastic Remedy"
MoSPI has attributed data volatility to the panel survey method, where only one-sixth of the sample of over 25,000 dwellings is surveyed each month. Their proposed solution is to survey all dwellings every month.
The authors strongly dispute this approach, labeling it a case of "throwing the baby out with the bathwater." They argue that the panel method is mathematically sound and that unexplained dips in data are more likely due to minor data-entry or cleaning errors, not a fundamental flaw warranting an expensive and logistically heavy overhaul.
A Call for Incremental, Sensible Fixes
Instead of a costly complete overhaul, the report advocates for a series of targeted, incremental improvements to the existing system. Their recommendations include:
- Retaining the panel method but potentially using a shorter rotation period.
- Continuing to use the geometric mean for calculation.
- Avoiding artificial price spikes through better implementation and training.
- Improving the classification and selection of dwelling types in the survey.
The central warning from the experts is clear: the proposed shift to monthly surveys is based on a flawed diagnosis and represents an unnecessarily drastic and expensive remedy. A more prudent path would be to refine the current system's implementation to ensure it accurately captures true market trends, safeguarding the integrity of a critical economic indicator.
