MOSPI Invites Comments On Freely Distributed Food Being Included In Retail Inflation

The Ministry of Statistics and Programme Implementation has invited public comments regarding its plans to approve or disallow the inclusion of food items donated for free in the public distribution system in its calculation for retail inflation.

It is doing so while it is revising the base year for the Consumer Price Index calculation and amending the weightage of the various items in the CPI food basket.

The ministry said it is mulling over how to address the challenge of addressing freely distributed PDS items in the CPI compilation after the implementation of a new integrated food security scheme under the National Food Security Act.

This scheme was implemented from Jan. 1, 2023, to provide free food grains for one year to beneficiaries under the Antyodaya Anna Yojana and Priority Households categories.

The challenges faced by the ministry are, with regard to mid-series adjustments, i.e., the addressal of the reduction in the price of PDS items from a positive value to zero or an increase in prices of PDS items from zero to some positive amount during an ongoing series, and whether to include it in the CPI basket at the start of the series.

This is a part of an ongoing debate regarding the inclusion of food prices while calculating retail inflation.

The debate was sparked after the government's pre-budget Economic Survey was released, where the report's author and Chief Economic Adviser of India, V Anantha Nageswaran, stated that deploying short-term monetary policy tools “to deal with inflation caused by supply constraints may be counterproductive," because interest rates cannot control the prices of food.

The ministry is also considering the following three methods to deal with the cases where the price of social security transfers decreases from some positive amount to zero during CPI calculation.

This includes using a zero price and adjusting the weight during the next update (which is proposed for the new series of CPI), redistributing the weight to the other items within the class or section (as currently used in the existing series), or redistributing the weight broadly over all the items of the basket.