Post by : Rameen Ariff

Photo : Reuters

India is making a major change in how it measures inflation. For the first time, the government will directly collect price information from large e-commerce companies such as Amazon and Flipkart. This information will then be used in calculating the Consumer Price Index (CPI), which is the benchmark for retail inflation.

This change reflects how Indian households are changing their shopping habits. More people are buying goods and services online, from groceries to electronics to flight tickets. Prices online often differ from prices in physical shops, and ignoring them could mean inflation data does not show the true cost of living.

According to a private study, India had nearly 270 million online shoppers in 2024. That number is growing fast, with a projected rise of 22% every year. As a result, online shopping is becoming a significant part of household spending. The government now believes it is time to recognize this shift and update the way inflation is measured.

What is Inflation and Why It Matters

Inflation is the rate at which the general level of prices for goods and services is rising. If inflation is high, people need more money to buy the same goods. If inflation is low, the value of money is more stable.

In India, inflation is tracked through the Consumer Price Index (CPI). The CPI measures the average change in prices paid by households for a selected "basket" of goods and services, such as food, clothing, housing, transport, and health care. Each item has a weight in the index depending on how much people usually spend on it.

The Reserve Bank of India (RBI) uses CPI as its main guide for monetary policy. If inflation goes above the target range (2-6%), the RBI may increase interest rates to control prices. If inflation is too low, the RBI may cut interest rates to encourage spending. This makes accurate inflation data very important—not only for government policy but also for businesses and households.

Why E-Commerce Data is Important

In the past, most Indians shopped at local markets and physical stores. But in the last decade, online shopping has grown rapidly. People now use their phones and computers to order clothes, groceries, appliances, and even services.

E-commerce platforms often offer discounts, sales, and dynamic pricing that change frequently. Prices online may also vary between cities and even between customers, depending on demand and supply.

If inflation data only relies on shop prices and ignores e-commerce, it misses a big part of real consumer spending. For example:

• A family may buy rice, cooking oil, or packaged food online at a lower price than the local store.

• Movie theaters are no longer the only source of entertainment—streaming platforms like Netflix or Disney+ have become major spending areas.

• Air tickets bought online may differ from those booked through travel agents.

By including online prices, the government aims to make CPI more realistic and more representative of how Indians live today.

How the New System Will Work

Saurabh Garg, the Secretary of the Ministry of Statistics and Programme Implementation (MoSPI), explained how the new system will function:

1. The government has started scraping prices from e-commerce websites in 12 large cities with populations above 2.5 million.

2. E-commerce firms are being asked to share their weekly average prices for goods.

3. These prices will be cross-checked against a broader dataset to make sure they are correct and not misleading.

4. The additional price data will then be used in the new CPI series, which is expected to be rolled out early next year.

This approach ensures that e-commerce prices are not used in isolation but balanced with traditional shop prices.

What Will Change in the New CPI

The new CPI series will have several important changes:

• New Weightage for Items: A recent Household Consumption Expenditure Survey (HCES) shows that Indians are now spending a smaller share of their income on food and a bigger share on services, housing, transport, and entertainment. The weights of items in the CPI will be adjusted to reflect this.

• Inclusion of Online Services: For the first time, online airfares and streaming media prices will be part of the index. This reflects how digital services have become a regular part of household spending.

• E-Commerce Goods: Prices of products sold online, from groceries to electronics, will be included alongside shop prices.

By making these changes, the CPI will provide a more accurate picture of inflation in modern India.

Global Context: How Other Countries Handle Online Prices

India is not alone in this shift. Several advanced economies have already included online price data in their inflation measures:

• United States: The U.S. Bureau of Labor Statistics (BLS) uses scanner data from retail stores and e-commerce platforms to calculate parts of the Consumer Price Index.

• South Korea: South Korea has integrated digital prices and online services into its inflation measure.

• European Union: Eurostat, the EU’s statistics agency, has been gradually adopting e-commerce and scanner data across member states.

These countries recognized early that ignoring online sales creates a gap between official data and real consumer behavior. India’s move is in line with this global best practice.

Broader Overhaul of India’s Statistics System

The update to CPI is part of a much larger effort to modernize India’s data system. MoSPI has several plans in motion:

1. New GDP Series: India will launch a new GDP series with 2022–23 as the base year. This will give a more current picture of economic activity.

2. Employment Data: The sample size of the monthly labour survey has been doubled from 45,000 households to nearly 90,000. This makes employment numbers more reliable.

3. Index of Services Production (ISP): A new quarterly index will measure output in the services sector, which makes up more than half of India’s GDP. This index will be launched next year.

4. Investment Survey: A new investment survey has been launched to better understand business spending.

Together, these reforms will make India’s statistics more credible, detailed, and aligned with international standards.

Benefits of the Change

The inclusion of e-commerce data in CPI has several important benefits:

• Accuracy: It ensures that inflation reflects real prices paid by families, whether in local markets or online.

• Timeliness: Online data is updated frequently, which can make inflation figures more current.

• Policy Impact: With better data, the RBI and government can make more informed decisions about interest rates, subsidies, and welfare schemes.

• Business Planning: Companies will benefit from more accurate consumer data when setting prices or planning investments.

• Consumer Trust: When official inflation numbers match the experience of ordinary people, public trust in government statistics grows.

Challenges and Concerns

While the reform is positive, it also comes with challenges:

1. Data Privacy: E-commerce companies may be cautious about sharing pricing data directly with the government.

2. Dynamic Pricing: Online prices change quickly, sometimes even within a day. Capturing the "average" price may not always be easy.

3. Urban-Rural Divide: Most online shoppers are in cities. Rural areas still depend heavily on local shops. The CPI must balance both.

4. Technical Capacity: Collecting, cleaning, and processing massive amounts of online data requires strong technical systems.

5. Consistency: To be reliable, online data collection must be continuous and consistent across platforms.

Despite these challenges, the benefits are seen as much greater, and India is moving ahead with the reform.

Why This Matters for Ordinary Citizens

For the average Indian family, inflation is one of the most important economic indicators. It affects how much money is left after paying for food, rent, travel, and other needs.

If inflation is measured wrongly, it can hurt people in two ways:

• If official inflation is lower than real inflation, households may feel that their struggles are being ignored.

• If official inflation is higher than real inflation, it may lead to unnecessary tightening of monetary policy, which can slow job creation.

By including online prices, the new CPI will reflect the shopping habits of a new generation of Indians. This means government policies can be designed with more accurate data about the real cost of living.

India’s decision to use e-commerce data in its inflation measure marks a historic step in economic statistics. It shows recognition of how technology and shopping habits have changed in the country.

With nearly 270 million online shoppers and counting, the digital marketplace is now too important to ignore. By including online goods and services in CPI, India is aligning itself with global practices and ensuring its inflation data reflects the reality of everyday life.

This is more than just a technical update. It is about trust, fairness, and modernizing the way the economy is understood. When numbers are closer to reality, policies are better, businesses are smarter, and citizens feel heard.

As India continues to grow as one of the world’s largest economies, accurate and modern statistics will be the foundation for making the right choices. This CPI reform, along with other upgrades like a new GDP series and stronger employment surveys, is a big step forward.

For ordinary Indians, it means that when the government says inflation is 5%, it will be closer to what they feel in their own wallets—whether buying rice from a local shop or ordering a smartphone online.