Should India’s inflation tracker account for free food handouts?

The government's foodgrain provisions reduce the cost of living but every statistical measure must retain conceptual clarity

- PRACHI MISHRA

The ministry of statistics and programme implementation (Mospi) has opened a discussion that goes beyond statistical jargon: should free goods be included in the consumer price index (CPI)? At first glance, this seems like an arcane statistical question. But dig deeper, and it reveals fundamental tensions about what we're actually trying to measure when we track retail inflation and the cost of living.

The question gets its urgency from the Pradhan Mantri Garib Kalyan Anna Yojana (PMGKAY). Under this integrated food security scheme, the government provides free foodgrains to about 75% of India's rural population and 50% of urban households. When a programme of this magnitude touches so many lives, how we account for it in our economic statistics matters profoundly.

The conventional economic logic seems straightforward. The CPI measures what consumers pay for goods and services. If something is free, or if there's no monetary transaction, then expenditure by the consumer is zero and its weight in the index, typically captured by its share in total consumption expenditure, should be zero. This isn't the same as subsidized electricity or regulated fuel prices, where consumers still open their wallets. Free grains involve no payment whatsoever.

But here's where it gets complicated. Consider, for illustration, a household that consumes 100kg of rice annually at ₹1 per kg. This implies a bill of ₹100. Now suppose the government provides 25kg free. The household then pays ₹75 for only 75kg.