Informist, Thursday, Sep 19, 2024

MUMBAI - While the weightage of food in the overall consumption basket of the Consumer Price Index cannot be entirely eliminated, the time to revise it has come, Dharmakirti Joshi, chief economist at CRISIL Ltd told reporters today.

The food and beverage category makes up 54.2% of the current CPI basket. The CPI is currently based on consumer spending patterns surveyed in 2011-2012. "See, when the framework for inflation targeting was designed, it was consciously decided to put food in. You can't ignore something that is contributing to over 45% of the household expenditure," he said.

"If food inflation is ignored, what will happen is that high food inflation will start getting transmitted into the non-food components as people will ask for higher wages to spend on food. It is then going to transmit into overall inflation and lead to generalised higher inflation," he said.

However, what can be done is that the share of food in the overall consumption basket can be reduced, says Joshi. "My sense is that as you (the country) develop, the share of food in the overall consumption basket keeps reducing...So the weight of food will automatically come down over a period, and it will have less influence on the aggregate inflation. I think that's the path. So now, the time has come to revise the consumption weights because they are based on 2011-12 consumption."

The Economic Survey 2023-24 had called for a re-examination of the framework to see whether the food inflation component can entirely be removed from its basket. The Reserve Bank of India should stop looking at food inflation in deciding interest rates and the government should explore giving coupons or direct cash transfers to the poor to deal with higher food prices, the survey had said. End

Reported by Pallavi Singhal

Edited by Aditya Sakorkar

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