Ahead of the meet, MPC member raises concerns over CPI calculation

A head of the Monetary Policy Committee (MPC) meeting next week, its member Ravindra H Dholakia has raised concerns over the manner in which consumer price index (CPI) is computed in India.

As the MPC is mandated to target CPI inflation rate at 4 plus minus 2 per cent, any measurement error in CPI is likely to have grave consequences for monetary policy.

Dholakia, who teaches at IIM Ahmedabad, has raised three specific concerns. First, even as the share of urban households in total household consumption expenditure is growing rapidly, CPI currently ascribes fixed weights to rural and urban expenditures. This