TOWARDS THE END OF 2024, when retail inflation rose steadily month by month to cross 6% in October, primarily driven by a seasonal spike in food and vegetable prices, North Block was rattled: What if the Reserve Bank of India (RBI) took it as a hint to go slow on monetary easing? That would affect growth, the primary concern of governments and politicians everywhere.

As the inflation rate rose from 3.65% in August to 5.49% in September and hit 6.21% in October, top functionaries from finance minister Nirmala Sitharaman to chief economic adviser V. Anantha Nageswaran spoke at multiple forums on the drawbacks of relying on the consumer price index (CPI).

The CPI, they argued, is based on a retail inflation basket, in which seasonal items such as food and vegetables carry a dominant weight of about 45.86%. They rallied in favour of rate cuts, saying that seasonal spikes in food inflation, an index heavyweight, cannot hold monetary easing at ransom, as it would have a ripple impact on economic growth.

Their target: the RBI’s Monetary Policy Committee meeting scheduled for December 4-6, 2024.

Sitharaman argued in favour of economic growth and said the inflationary spike was due to seasonality and would wane as the prices of consumables subsided.

“At a time when we want the industry to ramp up and build capacities, bank interest rates will have to be far more affordable,” Sitharaman had said.

The Union government had a point. But the RBI, as the custodian of monetary policy and bound by an inflation-targeting mechanism of 2-6%, had little leeway. Despite the government’s furtive missives, the RBI stuck to the rulebook. The then RBI governor Shaktikanta Das called for a more “balanced approach” on the matter. In the event, the RBI left policy rates unchanged.

Cut to today. Inflation is at an all-time low, and food prices are benign. Moreover, a major government effort to revise the base years for key macroeconomic indicators, including gross domestic product (GDP), retail inflation, and the Index of Industrial Production (IIP), is nearing completion.

The weights, methodologies, index composition, and overall granularity of macroeconomic data will undergo a significant change. The exercise, spearheaded by the Ministry of Statistics and Programme Implementation (MoSPI), will help ensure that policymakers do not face the predicament caused by high retail and food inflation in 2024.

MoSPI secretary Saurabh Garg, who is leading the initiative, says the base revision exercise, which the government launched a couple of years ago, is highly “holistic” and deploys technology for data collection.

New series and key dates

The first dataset using the revised base will be retail inflation. It will be released on February 12, the regular date for the monthly inflation data release. The only difference is that the base year changes from 2012 to 2024 (2024 = 100).

For GDP growth data, the base year will now be 2022-23 instead of 2011-12. For IIP, too, the government has chosen 2022-23 as the base year. The first IIP data with the revised base year will be released on May 28 this year.

The first GDP growth data based on the revised series with 2022-23 as the base year will be released on February 27 this year. This means, the second advance estimates of GDP for FY26, along with the quarterly estimates for Q3, will have the new base year.

It may be noted that the first advance estimates of GDP for FY26, released on January 7, were based on the current GDP series, and it is this data that the Budget-making exercise uses as a gauge of macro trends in the economy.

Why is the government using 2022-23 as the base year for GDP and 2024 for inflation? The base-year revision would have been done in 2018-19, given the implementation of major economic changes, such as the launch of the Goods & Services Tax (GST).

Then the Covid-19 pandemic descended on an unsuspecting world in 2020 and threw economies into disarray.

After the pandemic, the government conducted two back-to-back housing consumption expenditure surveys in 2023 and 2024 to ensure that the new price base reflected consumption realities and was not tinged by the post-pandemic trends. Garg says the government chose 2022-23 and 2024 because it felt they were the best normal post-Covid options.

Policymakers upbeat

Policymakers, meanwhile, are upbeat about the prospects of the new GDP, CPI, and IIP kicking in soon. RBI governor Sanjay Malhotra has said the revised series will capture consumption patterns and trends more accurately, as they have changed over time.

S. Mahendra Dev, chairman of the Economic Advisory Council to the Prime Minister (EAC-PM), and Nageswaran also maintain that the new data set will be of major help to policymakers and macro-observers.

Malhotra said in a LinkedIn video post by @GoIStats that MoSPI’s review of macroeconomic indicators is not merely a base-year revision but also includes changes to methods, weights, the item basket, and data sources. “Indicators such as CPI, GDP, and IIP play a very vital role in policymaking in RBI. For us, CPI is especially important for the monetary policy purposes because it anchors our flexible inflation targeting framework,” Malhotra said.

“Updating the CPI index will ensure that the index reflects the consumption patterns and household spending more accurately, as they have obviously changed over a period of time. Similarly, GDP numbers are also very important for us,” he added.

Dev and Nageswaran, too, suggest the same. “Researchers and analysts use the GDP numbers, and the government also needs reliable and timely data for the formulation of policies,” Dev says.

“Base revision is important because the structure of the Indian economy is changing. Consumption patterns are changing, and technology is changing. Everyone is looking forward to this base revision,” he adds.

CEA Nageswaran notes that the Department of Economic Affairs in the finance ministry is one of the largest internal users of macroeconomic data, including national income and prices. “We use the data to derive the macroeconomic patterns in the economy and advise the policymakers accordingly,” Nageswaran points out.

GDP: The key changes

What are the changes exactly? The government aims to expand and deepen data gathering. For calculating economic growth, the government will now use GST data in the new series, it said after the first stakeholder consultation in Mumbai in November. With this, the structural changes in the economy can be gauged better.

GDP data will also include the unorganised sector of the economy, a major improvement over the exercise conducted in 2014-15, which was criticised for overreliance on the Ministry of Corporate Affairs’ MCA-21 data.

To cast a wider net over economic activity, the new GDP series will also capture new sectors such as digital services and the gig economy. Sources say the GDP methodology will also include the informal economy, micro, small and medium enterprises (MSMEs), and small traders. It will also rely on data from the National Sample Survey Organisation and Periodic Labour Force Survey.

The new GDP series will also align with the UN System of National Accounts (SNA), which is the global standard for measuring a nation’s economic output. The SNA 2025 emphasises overall well-being, digitalisation and the informal economy. Since these indicators are not used in the current base year, the universe of indicators will be expanded after the base year is revised, providing a holistic view of economic activity.

District-level GDP data

According to sources, a key feature of the new GDP series will be district-level data. Government sources say state governments have also been included in this exercise, and feedback has been received on district-level production and contributions. A source noted that the new GDP methodology will also account for the value added by such products.

This will not only enhance the GDP data collection basket but also serve as an important tracker of value creation in the informal economy.

Inflation to track e-commerce

The new CPI inflation series with 2024 as the base year is also likely to see significant improvements in data collection. The new series would track prices of items and consumption patterns on e-commerce platforms and OTT platforms to generate not only inflation data but also other key changes. First and foremost, in order to ensure that seasonal variation in food prices do not create spikes in retail inflation, the weightage of food, vegetables, and beverages is likely to be lowered to 36.75% from 45.86% currently.

During stakeholder consultations, MoSPI highlighted several enhancements to the CPI inflation data collection process. The MoSPI will include more markets, towns, and items; adopt the Classification of Individual Consumption by Purpose (COICOP) 2018; refine the index compilation methodology; incorporate new data sources, such as administrative and online data; use the latest technology; and disseminate more granular data.

The adoption of COICOP 2018, an international framework for classifying household consumption for inflation calculation in the new series, is a significant step, as it will facilitate global comparisons of consumption, living standards, and price movements. The UN’s Department of Economic & Social Affairs had issued the COICOP in 2018.

The IIP is also likely to become more aligned with new-economy industries, including solar and green energy, e-mobility, and semiconductors. This will make the IIP numbers more meaningful, policy observers suggest.

It’s too early to guess what the new GDP and IIP numbers will look like. But it is clear that policymakers will have a dataset to plan future action post the revision of the base year.

With items such as “horse cart fare” removed from index calculations, policymakers can no longer be accused of putting the cart before the horse: changes in interest rates will reflect the economy’s trends more accurately.