A Truer Mirror for a Transformed Economy: Why CPI Rebasing Matters for Indian Industry

The release of India’s revised Consumer Price Index with base year 2024 on 12th February by the Ministry of Statistics and Programme Implementation (MoSPI) marks a defining moment for economic measurement in India. This is not merely a technical exercise in statistical housekeeping. For industry, it represents a fundamental recalibration of the lens through which the economy is viewed, policy is formulated, and business decisions are shaped. CII has long advocated for this update and industry is happy with the decisive move taken by the government to harmonize the framework of inflation in India to better reflect the realities of a diversifying and growing economy. 

The previous CPI series which was anchored to the base year of 2011-12 had served the nation well for over a decade. However, during this period, the Indian economy has undergone a profound structural transformation. Incomes have risen, urbanisation has accelerated with the services sector expanding its share in the growth composition, and digitalisation has reshaped how households consume. The consumption pattern that was captured in the previous base year no longer mirrored the spending pattern of the Indian households. Drawing on the Household Consumption Expenditure Survey (HCES) of 2023–24, the rebased index with 2024 base now incorporates these shifts, providing policymakers and industry with a far more accurate reading of the price pressures that households actually face. 

The most significant adjustment for industry in the updated series is the decreased weighting assigned to food & beverages, which has been lowered from approximately 46 per cent in the previous series to about 40 per cent in the current series. This modification is based on empirical evidence and aligns with Engel’s Law, a well-established principle asserting that as income rises and economic development progresses, the share of spending on food items tends to decline. Correspondingly, spending on other categories such as transport, communication, health, education, and recreation has increased in line with their greater contribution to household’s budgets. The new index captures this by expanding from six broad groups to twelve divisions in accordance with the internationally recognised Classification of Individual Consumption According to Purpose (COICOP) 2018 framework. It has also expanded the number of items in the CPI basket from 299 to 358 items by including modern additions such as OTT streaming services, rural housing rent, and value-added dairy products, while dropping the obsolete ones like VCR, DVDs, Tape Recorders, Second hand clothing, etc.  

The recalibration has meaningful benefits for industry. Previously, headline inflation was heavily influenced by unpredictable food prices which were often affected by monsoon or supply issues with items like the TOP (Tomatoes, Onions, and Potatoes) cohort which distorted CPI readings even during periods of general price stability. CII’s own research has shown that vegetables have been the biggest driver of food inflation in the recent years, exhibiting the highest volatility. This has resulted in a sharp rise in contribution of food to headline CPI from 27 per cent in 2021-22 to 66 per cent in 2024-25.  

This volatility has made the monetary policy decisions complicated with interest rates commonly kept high which at times complicated monetary policy calibration by amplifying the influence of short-term food price shocks on headline inflation. 

The lower food weight in the new CPI is expected to reduce this volatility meaningfully by providing a more stable inflation reading that better reflects the cost pressures.  

This is crucial for providing a conducive environment for investments in the country. Monetary policy decisions anchored to a more representative inflation gauge will be better calibrated, thus potentially creating the conditions for a more supportive interest rate environment over the near to medium term. Industry has repeatedly advocated for lower real interest rates to bolster private capital expenditure and this rebasing which will result reduced statistical noise in headline inflation print marks an important structural improvement in the policy framework.  

The first reading in the new series also brings with it subtle nuances that are important to notice. In the new series, headline CPI inflation for January 2026 came at 2.75 per cent, well within the RBI’s 2–6 per cent tolerance band and comfortably below the 4 per cent target. Food inflation remained low at 2.13 per cent, ending a seven-month streak of deflation. Importantly, the month-on-month changes in the CPI as per the available data of 2025, with the new base, shows relatively modest fluctuations. While one data point does not establish a trend, this reading under the updated framework reinforces the picture of a benign inflation environment that is consistent with what industry has been experiencing on the ground and one that strengthens the macroeconomic conditions that support sustainable growth.  

For Indian industry, the rebased CPI arrives at a time of considerable strategic importance. The Economic Survey 2025–26 has indicated an upward revision of India’s medium-term potential growth to 7 per cent. Realising this target necessitates consistent private investment, which is contingent upon maintaining a stable macroeconomic environment, providing clear policy guidance, and conducting accurate evaluations of inflation trends. The new CPI series strengthens all three pillars. By providing a contemporary representation of consumption patterns, it ensures that the interest rate corridor is informed by accurate data, that fiscal planning reflects genuine cost-of-living dynamics, and that real wage assessments across sectors are grounded in contemporary reality.  

CII commends MoSPI for this comprehensive and timely reform. We also welcome the Ministry’s emphasis on leveraging technology and digitalisation for better data quality, an approach that aligns with CII’s consistent advocacy for strengthening India’s statistical ecosystem. 

As India positions itself as a global manufacturing hub and a resilient, consumption-driven economy, the quality of its macroeconomic data infrastructure is as vital as its physical infrastructure. The rebased CPI is a significant step in building that foundation. Indian industry looks forward to similar rigour being applied to the forthcoming GDP rebasing, and to an era of data-driven policymaking that reflects the India of today and not the India of a decade ago. 

Note: This article has been authored by Chandrajit Banerjee, Director General, Confederation of Indian Inustry. It was first published in the March 2026 issue of CII ARTHA (Issue 10)