Including PDS Items in CPI: MoSPI Seeks Experts’ Input

Why in the news?

The Ministry of Statistics and Programme Implementation seeks expert opinions on how to include free PDS items and social transfers in the new Consumer Price Index (CPI).

Including PDS Items in CPI: MoSPI Seeks Experts' Input

Challenges in Including PDS Items in CPI:

  • The Ministry of Statistics and Programme Implementation (MoSPI) is addressing how to include PDS items and free social transfers in the new Consumer Price Index (CPI) for retail inflation calculation.
  • The debate centers around whether to change the price of PDS items from positive values to zero, or vice versa, and whether such items should be included in the CPI basket at all.
  • MoSPI has released a discussion paper seeking feedback from experts, academics, and the public on this issue.

Current Methods and Issues:

  • There are two key challenges:
    • Mid-series adjustments: How to handle price changes of PDS items from positive to zero or vice versa.
    • Inclusion in the CPI basket: Should free PDS items be included in the index, and how should their weights be adjusted?
  • The existing CPI series handles these by redistributing the weights of PDS items to other categories or excluding them if no expenditure is incurred.
  • Some experts propose assigning a minimal value (like 1) instead of zero, while others suggest excluding free PDS items entirely from the CPI.

International Standards and Future Revisions:

  • The International Monetary Fund (IMF) recommends excluding free social transfers from CPI as they do not generate monetary transactions.
  • MoSPI is revising the base year of CPI from 2012 to 2024 and is considering updating the weights and item basket based on the 2022-23 Household Consumption Expenditure Survey (HCES).
  • Feedback on this issue is requested by January 15, 2025, to inform the ongoing CPI revision process.

Sources Referred:

PIB, The Hindu, Indian Express, Hindustan Times