From roti to OTT: New inflation math tells story of new India

The January Consumer Price Index (CPI) print marked more than just a new inflation number. At 2.75%, inflation returned to the Reserve Bank of India’s target band, and under a revised data series with a new base year of 2024. On the surface, this was a routine statistical update which was long overdue given that the earlier basket was based on 2011-12 consumption patterns. Yet beneath the technical adjustments lies a deeper economic story.

The revision of the CPI basket does not merely refine how inflation is measured but also indirectly captures how Indian households are spending differently than they did a decade ago. The most striking signal is the reduced weight assigned to food and the greater emphasis on services, housing and modern consumption categories such as OTT. This shift, from roti to OTT, so to speak, reflects an economy in transition from subsistence-heavy spending toward more diversified and discretionary consumption.

Why the CPI basket needed a reset

Inflation measurement depends on accurately reflecting what households buy and how much they spend on each category. When the structure of consumption changes, the index must evolve accordingly. The previous CPI basket was anchored in 2011-12 expenditure patterns, a period before the rapid expansion of digital services, organised retail, app-based transport, streaming platforms and newer fuel formats like CNG and PNG.

The revised series updates the base year to 2024 and incorporates expanded data sources, including digital and administrative records. For the first time, rural house rent has been included, and the housing sample size has been strengthened in both rural and urban areas. Prices from e-commerce platforms are now factored into the index. Items such as OTT subscriptions, airfares and telecom plans are formally tracked. At the same time, outdated items like VCRs, cassette players and coir rope have been removed.

These adjustments improve statistical accuracy. But they also mirror a society where digital media subscriptions coexist with traditional staples, and where consumption baskets increasingly reflect modern lifestyles.
Food: A structural shiftThe most consequential change in the revised CPI is the sharp reduction in the weight of food, from roughly 46% earlier to around 37%. Food still remains the single largest component of the CPI basket, and at 37%, it continues to exert substantial influence over headline inflation. However, the decline in its share is economically significant.

Food prices are typically volatile, influenced by monsoons, supply disruptions and global commodity trends. A lower weight for food may reduce headline inflation volatility and provide a smoother outlook for monetary policy. But the deeper implication lies in what this weight reduction represents.

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Inflation baskets are derived from household consumption surveys. If the share of food in the CPI has declined, it means households are allocating a smaller proportion of their total expenditure to food. This does not imply that food spending has fallen in absolute terms. Rather, other categories are growing faster.

This pattern aligns with a well-established economic principle: as incomes rise, the proportion of income spent on food declines. Even if families spend more money on food, food occupies a smaller slice of the total consumption pie. The revised CPI structure effectively acknowledges that India is moving along this developmental trajectory.

Evidence from the Household Consumption Expenditure Survey

The Household Consumption Expenditure Survey data underscores this transformation. In rural India, average Monthly Per Capita Consumption Expenditure (MPCE) rose from Rs 1,430 in 2011-12 to Rs 3,773 in 2022-23. In urban India, it increased from Rs 2,630 to Rs 6,459 over the same period. Household consumption has more than doubled in nominal terms within a decade.

Equally important is the shift in spending composition. In rural areas, the share of expenditure devoted to food declined from 52.9% in 2011-12 to 46.38% in 2022-23. In urban areas, the share fell from 42.62% to 39.17%.

These numbers confirm two simultaneous trends. First, consumption levels are rising significantly. Second, the relative importance of food in household budgets is gradually diminishing. Households are spending a larger share on non-food items such as clothing, transport, housing, healthcare, education and entertainment.

The CPI revision simply aligns inflation measurement with this new consumption story. The basket now reflects what people actually buy rather than what they bought over a decade ago.

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The rise of services and modern consumption

The updated CPI basket’s inclusion of rural housing, streaming services, digital storage devices, value-added dairy products and services such as babysitting reflects broad-based changes in lifestyle and aspirations. The addition of rural house rent is particularly significant, as it acknowledges monetisation and formalisation trends in rural housing markets.

Similarly, incorporating online media subscriptions and digital services captures the rapid expansion of India’s digital economy. Telecom plans, OTT platforms and air travel are no longer niche expenditures limited to a small elite. Their presence in the CPI basket indicates that they now constitute meaningful components of household spending.

This shift toward services is characteristic of economies transitioning from lower-middle-income to middle-income status. As incomes rise, households move beyond basic necessities toward comfort, convenience and experience-driven spending.

Food still matters but it no longer dominates

While the narrative of maturing consumption is compelling, it is important not to overstate the shift. At approximately 37% of the CPI basket, food remains a dominant driver of inflation. In a country with significant rural and low-income populations, food security and price stability remain central policy concerns.

Moreover, food inflation can still exert outsized psychological and political impact. Even with a reduced weight, spikes in food prices will meaningfully influence headline inflation and household welfare.

What has changed is not the importance of food in absolute terms, but its relative dominance. The CPI no longer portrays India as an economy where nearly half of household expenditure is tied to food. Instead, it reflects a more balanced distribution across categories.

The January 2026 CPI revision underscores that India’s consumption story is both expanding and diversifying. Household spending has grown substantially over the past decade, and the composition of that spending has shifted away from food toward housing, services and modern goods.

The CPI rejig is technical in design but also tells a story. By updating how inflation is measured, it reveals how India is changing its spending patterns.