MoSPI Proposes Inclusion of Free PDS items to CPI: Rice, Wheat, Sugar and More

The Ministry of Statistics and Programme Implementation (MoSPI) has proposed changes to the Consumer Price Index (CPI) to better reflect the impact of free Public Distribution System (PDS) items on inflation and cost-of-living shifts. 

The updated methodology will consider food items distributed under the Government of India’s free distribution schemes, including staples such as rice, wheat, and sugar, with a focus on accurately capturing the shift between subsidised and market prices.

Key Changes in CPI Methodology

Zero Price for Free PDS Items

The proposed revision includes assigning a “zero price” to free PDS items such as rice, wheat, and sugar while adjusting their weights in the CPI during the next update. This method aims to avoid distorting inflation readings, particularly when items are shifted from subsidised to free distribution. This change comes after recognising that the current system has muted the impact of such transitions, which are significant for large beneficiary populations under the National Food Security Act (NFSA) and PMGKAY schemes.

Unified Item Index

A significant aspect of the new methodology is the development of a unified item index. This will blend prices from both PDS and open-market sources using a Laspeyres framework, ensuring a more accurate reflection of actual consumption conditions. The unified index will be calculated based on state-level weighted average PDS prices across various beneficiary categories (APL, BPL, AAY, PHH), which ensures comparability when policy shifts occur.

Read More: 3% DA Hike Approved for Central Govt Employees and Pensioners Before the 8th Pay Commission!

Improved Reflection of Consumption and Inflation

Including free PDS items in the CPI will provide a more realistic picture of inflation and consumption patterns for India’s population. As these in-kind transfers play a substantial role in market prices, the updated CPI will more effectively capture the dynamics of shifting from subsidised or free distribution to market-based purchases. This, in turn, will provide better insights for monetary policy, welfare calibration, and policy interventions.

Methodology in Brief

To integrate PDS items, the revised CPI will use the weighted average price of PDS items across beneficiary categories. A unified index will be created for each item (e.g., rice), combining PDS and non-PDS sources, and will be weighted based on Household Consumer Expenditure Survey (HCES) quantities. In cases where PDS items have zero price periods, adjustments will be made to the weights at the next CPI update.

Consultation and Feedback

The MoSPI is currently inviting feedback on the proposed methodology until October 22, 2025. Stakeholders, including experts, academicians, and government bodies, can submit their comments on the MoSPI website or via email.

Conclusion

The proposed changes to the CPI methodology aim to ensure that inflation readings are more accurate, reflecting the impact of free PDS food items. By including these items, the government hopes to better capture cost-of-living shifts and provide more reliable data for policy-making and economic planning.

Disclaimer: This blog has been written exclusively for educational purposes. The securities or companies mentioned are only examples and not recommendations. This does not constitute a personal recommendation or investment advice. It does not aim to influence any individual or entity to make investment decisions. Recipients should conduct their own research and assessments to form an independent opinion about investment decisions.

Investments in securities are subject to market risks. Read all related documents carefully before investing.