Data tools mustn’t get rusty: India must institutionalize regular statistical revisions

The CPI revision is the first among multiple indicators undergoing a base revision. Estimates for GDP and other variables from the national accounts will be released soon.

This is an important exercise, given that the last revision for most of India’s economic indicators was to 2011-12 as their base year. An outdated base year was a major part of the criticism levelled by the International Monetary Fund (IMF) that classified India in its ‘C’ category while ranking countries on the quality and reliability of their statistical systems.

But the re-basing of economic indicators is not just necessary to satisfy the demands of users like multilateral institutions. Given the dynamic nature of our economy, it is important in itself.

Ideally, such revisions should be carried out every five years or less, but the series in use for most indicators is more than a decade old. The delay was primarily due to the absence of data on household consumption expenditure from the National Statistical Office.

The 2017-18 consumption expenditure survey was unfortunately withdrawn by the government, which cited problems of data quality. The new CPI series uses the Household Consumption Expenditure Survey (HCES) of 2023-24 for deriving the weights of various items of household spending in its basket.

That said, such revisions are not just a mechanical re-basing exercise, but also an opportunity to strengthen the underlying data base to better reflect what indicators convey.

In keeping with this, the CPI revision also made several major changes.

The first is its move to the 2018 international standard of ‘Classification of Individual Consumption According to Purpose.’ This provides more granular data.

Second, it broadens the scope of data coverage at both the item and market levels. It also uses the current consumption basket, which implies that some items that have become obsolete or insignificant are no longer part of the series.

Similarly, new items have been added reflecting current consumption trends. As a result, the total number of items used in the new CPI series has increased to 358 from 299.

Similarly, there is a significant expansion in spatial coverage, with the number of markets covered rising to 1,465 rural and 1,395 urban across 434 towns from 1,181 rural and 1,114 urban across 310 towns.

Further, it now includes 12 online markets across as many towns. Price data collection has also been streamlined by using administrative numbers along with information collected by investigators.

These revisions reflect the country’s changing consumption patterns and market structures across geographies. The availability of HCES 2023-24 allows the series to use consumption weights that are recent. As a result, the 2024 CPI series has lower weights for food and beverages than the 2012 series. This change is consistent with a decline in the share of food in the typical household consumption basket as incomes rise over time.

While this decline was marginal in urban areas (to 30.3% from 32.8%), it was sharper in rural areas (to 42% from 50.9%). A re-adjustment of rural-area weights to include housing, which was not in the 2012 series, also contributed to this fall.

The new series is better, up-to-date and with expanded coverage. A fuller analysis of inflation trends and their drivers will be possible once the back series is released. Similar revisions in other macroeconomic indicators will also likely reset the underlying statistical evidence on which policies are made.

However, such exercises should not be a once-in-a-decade feature. With the statistical system facing flak for delayed surveys, their withdrawal and comparability issues, revisions help restore the credibility of our statistical system. Given rapid changes in India’s social and economic structures, consumption patterns included, we need to institutionalize the regularity of such revisions. More granular data and survey updates should serve us well.

Robust statistical indicators are not just important from an academic perspective, but also for policymaking. Strengthening our statistical system and institutional mechanisms for timely revisions will go a long way in helping us understand the dynamics of change in the Indian economy. It will also enable quicker policy responses.