January’s Consumer Price Index CPI print came in at 2.75%, bringing inflation comfortably within the Reserve Bank of India’s target band. On the surface, it was simply another data release. More technically, it marked the rollout of a revised CPI series with a new base year of 2024, replacing the long-standing 2011–12 benchmark.

But beneath the statistical update lies a deeper economic signal.

Inflation indices are not merely price trackers. They are mirrors of how households spend – when the CPI basket changes, it reflects a change in the structure of consumption itself. The January revision is not just about inflation. It is about how India spends – and how that spending is evolving.

Why the CPI Basket Reset Matters

Inflation measurement depends on accurately reflecting what households actually purchase and the proportion of income allocated to each category. If the economy evolves but the consumption basket does not, the index begins to misrepresent reality.

The earlier CPI series was anchored in 2011–12 expenditure patterns – a period before digital streaming became mainstream, before widespread app-based mobility, before UPI payments transformed transactions, before rural e-commerce penetration deepened, and before rapid formalisation of housing rents.

The revised 2024 base year incorporates rural house rent for the first time. It factors in e-commerce price data, OTT subscriptions, telecom plans, airfares and digital devices. At the same time, outdated items such as VCRs, cassette players and coir rope have been removed.

These changes improve statistical precision. But they also reflect something more structural: India’s consumption basket now includes services and digital products that barely existed a decade ago. Most significantly, the weight of food in the CPI basket has been reduced sharply – from roughly 46% to around 37%.

The Structural Shift in Food’s Declining Share

Food remains the single largest component of India’s inflation basket. At 37%, it continues to exert substantial influence. But the reduction from nearly half the basket to just over a third is economically meaningful.

From a statistical standpoint, the shift may reduce inflation volatility. Food prices in India are highly sensitive to monsoon variations, supply disruptions and global commodity swings. With a lower food weight, headline inflation could experience fewer sharp spikes. This has meaningful implications for monetary policy.

For decades, food inflation has disproportionately shaped inflation expectations in India, often prompting reactive policy adjustments in response to temporary agricultural shocks. A structurally lower food weight may smooth inflation swings and give the Reserve Bank of India greater policy stability. However, statistical weight does not eliminate political sensitivity. Food prices retain outsized psychological and electoral importance.

The deeper implication, however, is economic rather than statistical.

Consumption weights are derived from household expenditure surveys. A decline in food’s share does not mean Indians are eating less. It means other categories are growing faster.

This aligns with a foundational economic principle: as incomes rise, the proportion of income spent on food declines even if absolute food spending increases. Rising incomes change spending composition before they change lifestyles.

India’s CPI revision is effectively acknowledging that the country has moved further along this developmental trajectory.

Evidence from Household Consumption Data

The structural story is reinforced by data from the Household Consumption Expenditure Survey.

In rural India, average Monthly Per Capita Consumption Expenditure rose from ₹1,430 in 2011–12 to ₹3,773 in 2022–23. In urban India, it increased from ₹2,630 to ₹6,459 over the same period.

Household consumption has more than doubled in nominal terms within a decade.

Equally important is the shift in composition. Rural food expenditure share declined from 52.9% to 46.38%, while urban food share fell from 42.62% to 39.17%.

These figures confirm two simultaneous trends. Consumption levels are rising meaningfully, and the relative dominance of food is gradually diminishing.

Households are allocating a greater share of their budgets to non-food items — clothing, transport, housing, healthcare, education, communication and entertainment. The CPI revision is therefore not an arbitrary statistical adjustment. It is an alignment with lived economic reality.

The Rise of Services and Discretionary Spending

The updated CPI basket includes rural housing rent, streaming services, digital storage devices, value-added dairy products and services such as babysitting. These inclusions capture a broader lifestyle shift.

India’s consumption is diversifying toward services, experiences and convenience.

Projections from Deloitte India and the Retailers Association of India reinforce this trajectory. By 2030, India’s per capita income is projected to exceed $4,000, up from just over $2,000 in FY25. The number of Indians earning more than $10,000 annually is expected to nearly triple, from 60 million to 165 million.

Urban food expenditure share is projected to decline further, while travel and recreation spending is expected to rise significantly. Health, wellness, fitness and beauty expenditures are also anticipated to expand.

These projections are not separate from the CPI story. They are forward confirmation of what the revised basket already reveals structurally.

Digital subscriptions, air travel, consumer electronics, beauty products, wellness services and organised retail are expanding beyond a narrow elite. This reflects not merely consumption growth but premiumisation, a shift from basic functionality to higher-value goods and experiences.

Rural India’s Gradual Convergence

Rural India is not replicating urban consumption patterns wholesale. But convergence is visible.

Food’s share in rural budgets is declining. Spending on processed foods, conveyance, medical expenses and communication is increasing. The inclusion of rural housing rent in the CPI reflects monetisation and formalisation of arrangements that were previously informal.

Digital payments, e-commerce penetration and improved infrastructure have reduced consumption frictions in non-metro regions. Rural consumption baskets remain distinct, but they are increasingly integrated with national and digital markets.

Is India Entering an Affluence-Led Growth Phase?

A recent analysis by Wright Research posed a compelling question: will India’s next decade of growth be driven primarily by necessities or by rising affluence?

The answer is unlikely to be binary.

India is not abandoning necessity-driven growth. Infrastructure buildout continues. Welfare programmes remain significant. Food security remains politically central. But incremental GDP impulse may increasingly emerge from discretionary categories. The economy is layering affluence on top of necessity, not replacing it.

That layering matters. It shifts the marginal driver of growth toward services, branded goods, formal retail, financialisation and experiential consumption.

Risks and Structural Constraints

The affluence thesis is compelling but not guaranteed.

Employment quality remains critical. If income gains are concentrated in upper deciles, discretionary growth may narrow rather than broaden. Distribution deserves scrutiny. Rising averages can mask inequality. The CPI reflects aggregate spending patterns but does not fully capture distributional nuance.

Asset-price dependency is another vulnerability. If discretionary spending is wealth-effect driven – tied to equity markets or real estate cycles – volatility could dampen momentum.

Credit expansion also plays a role. If consumption is increasingly financed through leverage rather than income growth, financial stability risks may accumulate.

Global shocks remain a constraint in an interconnected economy.

A mature consumption transition requires sustained income expansion, not episodic wealth effects.

The Last Bit, What the CPI Really Reveals

The CPI revision is technical in design, but transformational in implication.

It shows an economy where food still matters deeply – economically and politically – but no longer defines the entire consumption narrative.

India’s spending patterns are diversifying. Services are gaining prominence. Digital infrastructure is reshaping access. Rural and urban consumption are converging in new ways. 

The CPI revision and the declining weight of food are not inherently good or bad. They are indicators. What they ultimately signify depends on what is driving the transition.

If rising discretionary spending is income-led – supported by productivity gains, employment expansion and broad-based earnings growth – the shift toward services and premium consumption is sustainable. If instead it is driven by asset appreciation or aggressive credit expansion, it becomes vulnerable to cyclical reversals.

The CPI is not just a statistical update. It is a mirror and what it reflects is an India transitioning from subsistence-dominated spending toward layered, aspiration-driven growth. Whether that transition becomes durable prosperity or cyclical exuberance will depend not on consumption patterns alone, but on the depth, quality and inclusiveness of the income growth beneath them.