CPI Base Year: India Resets Inflation Base Year to 2024: Key Changes in CPI Basket and Impact on Economy
CPI Base Year: Data and statistics serve as the backbone of any economy, acting as the primary indicators for a nation’s progress, GDP, and inflation assessment. In a significant move to reflect the changing economic reality, the Government of India has overhauled the mechanism for calculating the Consumer Price Index (CPI) or retail inflation. The government has reset the Base Year for CPI from 2012 to 2024. Following this major reset, the retail inflation rate was recorded at 2.75% in January 2026.
Why Was the Base Year Changed?
Previously, inflation figures were calculated based on the consumption patterns of 2012. However, over the last 10-11 years, the way Indians spend money has undergone a drastic transformation.
- Lifestyle Evolution: Services like Swiggy, Zomato, Netflix, and various OTT platforms were either non-existent or niche in 2012. Today, they are integral to the common man’s monthly expenditure.
- Obsolete Data: Calculating inflation based on an old base year failed to present an accurate economic picture. Without precise data, formulating effective economic policies becomes challenging for the administration.
Key Changes in the CPI Basket
The government has significantly modified the “basket” of goods and services used to calculate inflation. Both the number of items and their weightage have been adjusted to mirror the reality of 2024.
1. Increase in Number of Items
The government has expanded the list of tracked items from 299 to 358. This expansion ensures a more realistic and comprehensive depiction of inflation.
| Category | Old (2012 Base Year) | New (2024 Base Year) |
|---|---|---|
| Goods | 259 | 308 |
| Services | 40 | 50 |
| Total | 299 | 358 |
2. Shift in Weightage
Reflecting modern spending habits, the weightage of various categories has been realigned:
- Food: The weightage has been reduced from 45.86% to 36.75%. As incomes rise, people tend to spend a smaller proportion of their earnings on food and more on other comforts.
- Housing: The weightage for housing has been increased from roughly 10% to 17-18%. This covers urban housing costs, rent, electricity, and water utilities.
Inclusions and Exclusions
To keep the index relevant, obsolete items have been discarded while modern services have been inducted.
- Out (Removed): Items like VCRs, DVD players, tape recorders, radios, and CDs, which are rarely used today, have been removed from the list.
- In (Added): Modern necessities such as mobile tariff plans, OTT subscriptions, online food ordering, travel, transport, and personal care products have been included.
Integration of the Digital Market
In 2012, e-commerce platforms like Amazon and Flipkart had limited penetration. In the new system, the government will now track prices from approximately 12 digital platforms to incorporate online shopping trends into inflation statistics.
Impact of the Change
The data derived from the new base year and updated basket will be more precise, leading to several long-term effects:
- Monetary Policy: It will assist the RBI in setting the Repo Rate more accurately and keeping inflation within the targeted 4% range (2-6% band).
- Allowance and Pension: The calculation of Dearness Allowance (DA) and pensions for government employees relies on CPI data. This update ensures that these benefits are adjusted according to current expenditure patterns.
- Global Standards: India is adopting the ‘Classification of Individual Consumption by Purpose’ (COICOP) standards supported by the ILO, moving from 6 groups to 12 divisions for better international alignment.
