IGIDR Working paper: The Plutocratic Bias in the Indian CPI

NO : WP-2017-011

AUTHOR : Dilip M. Nachane, Aditi Chaubal

TITLE :  The Plutocratic Bias in the Indian CPI


The Laspeyres-type consumer price index (CPI) is traditionally used to measure the changes in cost-of-living over time. Studies indicate this CPI suffers from a plutocratic bias, attaching greater
weightage to expenditure by rich compared to poor; while democratic CPI uses equal weights. We calculate the plutocratic bias for the new Indian CPI (launched in 2012), rural and urban CPI, and CPI of three Indian states from 2012-2015. We develop democratic CPI indexes for commodity groups: necessities, luxuries, housing and others; and separate indexes for three consumption brackets. Our analysis has important implications for monetary policy and indexation of transfer payments.

Keywords : Laspeyres index numbers, plutocratic bias, democratic CPI, expenditure elasticity, consumption brackets, India.

JEL Code : E01, E3, E310, E52
Weblink : http://www.igidr.ac.in/pdf/publication/WP-2017-011.pdf