Reserve Bank of India Governor Sanjay Malhotra has expressed strong support for a major statistical update announced by the Ministry of Statistics and Programme Implementation. The ministry plans to revise the base year for three crucial macroeconomic indicators. These indicators are the Consumer Price Index, Gross Domestic Product, and the Index of Industrial Production.
A Welcome Move for Policy Making
Governor Malhotra welcomed the comprehensive revision. He stated that this exercise will do much more than simply change a reference year. The update includes revisions in methodologies, weight assignments, item baskets, data sources, and computation techniques. For the Reserve Bank of India, these indicators play a critical role in shaping monetary and economic policies.
Importance of CPI for Inflation Targeting
Malhotra highlighted the special significance of the Consumer Price Index. "For us, CPI is especially important for monetary policy purposes," he said. He explained that it anchors the central bank's flexible inflation targeting framework. Updating the CPI base year will ensure the index accurately mirrors current consumption patterns and household spending. These patterns have shifted significantly over the past decade.
Capturing a Dynamic Economy
The RBI Governor emphasized the equal importance of revising Gross Domestic Product estimates. He noted that GDP figures must capture the evolving structure of the Indian economy. This includes the growing prominence of the services sector, digital economic activities, and emerging new business models. A refreshed GDP series will provide a clearer picture of economic growth.
Regarding the Index of Industrial Production, Malhotra said revising its base year will improve assessments of the underlying momentum in the real economy. It will offer better insights into manufacturing and industrial activity trends.
A Timely Step Forward
"It is a very timely and a very welcome step," Malhotra remarked. He believes that by strengthening India's statistical systems, the revision will facilitate more calibrated and effective policies. This move supports the twin objectives of maintaining price stability and fostering sustainable economic growth.
The Transition to New Data Series
The Consumer Price Index-based retail inflation data for December 2023 was the last release under the current 2012 base series. Inflation figures for January 2024 will be computed under a brand new CPI series. This new series will use 2024 as its base year.
MoSPI is expected to release this new CPI series in February. It will involve a comprehensive overhaul of coverage, item basket, weights, and methodology. Furthermore, the ministry plans to release a new national accounts series for GDP next month. A revised IIP series will follow later in the year.
This statistical modernization effort aims to ensure that India's key economic indicators remain relevant, robust, and reflective of the contemporary economic landscape. It promises to provide policymakers, businesses, and analysts with higher quality data for informed decision-making.
