The Hindu : Tamil Nadu News : The food basket and the CPI: what needs to change and why

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Tuesday, May 13, 2008
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Tamil Nadu

The food basket and the CPI: what needs to change and why

Meera Srinivasan

Although consumption patterns have changed hugely, the weightage hasn’t, say economists

It is not just food patterns that have changed. Health expenses have shot up
K. Nagaraj

Surveys to establish weightages in the food basket must be done more frequently
A. Vaidyanathan
Baskets and averages have no meaning when you have extreme economic variations
M. S. Swaminathan

Photo: Meera Srinivasan

tough job M. Mohammed Ibrahim in Pondy Bazaar, T. Nagar.

As the clamour over rising prices grows, some senior economists say that the way that the government calculates the consumer price index and the food basket needs to change.

For most people, a food basket is the woven container you carry along when you go grocery shopping. With the recent focus on inflation, however, it is taking on a new meaning.

Clubbed together with other “baskets” for pan, supari, tobacco and intoxicants, fuel and light, housing, clothing, bedding and footwear, and other miscellaneous expenses, the food basket is also a macro-economic indicator that helps determine many things, from your salary to the RBI’s fiscal policy — and of course, the prices of the purchases in your own shopping basket.

The food basket and other items listed above are all used to determine the consumer price index which measures the average price of goods and services purchased by the average Indian household. The index can then be used to fix wages, allowances, pensions and the prices of government-regulated products.

Given the vast diversity of average Indian households, four separate indices are used, one each for industrial workers, agricultural labourers, rural workers and urban non-manual employees.

Agricultural scientist M.S. Swaminathan feels the current system needs to change, because baskets and averages “had no meaning” in a country where there were extreme economic variations. “The poor end up suffering the most, as the poorer you are, the greater the percentage of your income that goes to food. A worker in the National Rural Employment Guarantee Scheme [earning Rs. 80 a day] will spend more than half of what he earns on food."

Professor Swaminathan suggests that income levels, rather than profession or location should be the distinguishing factor. He says the food basket should be “stratified” into three — for Below-Poverty-Line (BPL) families, the middle 50 per cent and the rest. “The basket considered for below-poverty-line families is very different in composition from the top 25 per cent, who will probably be spending less than five per cent of their income on food.”

Economist A. Vaidyanathan has a different solution in mind. He suggests that the surveys to establish the weightages in the food basket should be carried out more frequently.

These surveys, of the four different groups, have been done every 20 or 25 years to accommodate changes in consumption patterns. “These changes have accelerated hugely in recent years,” says Prof. Vaidyanathan. “Yet, the last survey for the agricultural labourers index was done in 1986-87. The base for the urban non-manual employees index is even earlier, in 1984-85.” Only the industrial workers index has been recalibrated in the current decade, with the base year set as 2000-01.

Dr. Vaidyanathan points out that over the intervening years, “the composition of the food basket has changed, the ratio between food to non-food expenditure has changed and the composition of non-food expenditure itself has also changed.”

Madras Institute of Development Studies professor K. Nagaraj agrees that the surveys need to be carried out more often. “Especially with computerisation coming in, the weightage diagrams can be revised more frequently,” he feels. “It is not just food patterns that have changed. Health expenses have shot up with the increase of private healthcare. Transport expenditure is not always reflected properly. It used to be the price of a season ticket on the Railways…Some of these calculations are now outdated,” he said.

While more frequent surveys — at least one every ten years — need to be carried out to reflect these changes, Dr. Vaidyanathan warns that the interpretation of data must also be done correctly.

It must not fall victim to any hysteria over rising prices. “Even if the price of food is rising more than the price of manufactured products, it does not necessarily mean the index must change. If the weight of food products is going down, but the price is rising, we can’t say what the overall impact will be,” he said.

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