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Informist, Tuesday, Dec. 24, 2024

 

NEW DELHI – The government is looking to change the way it treats public distribution system items and other free social transfers in the compilation of CPI. The statistics ministry has proposed to use a zero price in the new CPI series in cases where the price of an item distributed under a social security scheme falls to zero from a positive amount, the ministry said in a discussion paper.

 

After using a zero price, the ministry will "adjust the weight during the next update", it said in the discussion paper. The statistics ministry is currently working on the revision of the CPI. The base year of the CPI will be changed to 2024 from the current 2012 and weights and item basket will be derived from the household consumption expenditure survey 2022-23 (Aug-Jul).

 

In January 2023, the implementation of a new integrated free food scheme led to a sharp rise in CPI inflation because of a change in methodology. In order to deal with the provision of free foodgrains, the statistics ministry had re-distributed the weight of the items distributed for free to the other items within the section.

 

"In the existing series, in the state/UTs (Union Territories) where free distribution scheme is implemented for all sections of the society, the weights of these items are pro-rata distributed on the other items of the section within the state/UT," the ministry said in the paper. Both methods, using a zero price and re-distributing weight to other items within a class, are prescribed in the International Monetary Fund's CPI manual from 2020.

 

"However, concerns were raised regarding the approach used to incorporate this free distribution in the CPI compilation. It was argued that the adopted method doesn't accurately capture the impact of free food grain distribution on inflation," the ministry said. 

 

The ministry has also sought suggestions on the issue of free distribution of certain items in public distribution system for derivation of weights and their inclusion in the CPI basket of the new series of CPI. In the current series, the freely distributed items under the public distribution system are excluded from the CPI basket.

 

The ministry has sought views and suggestions on the treatment of free transfers under the social security scheme by Jan. 15.  End

 

Reported by Shubham Rana

Edited by Deepshikha Bhardwaj

 

 

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