The labour bureau will unveil on Wednesday (October 21) a new series for consumer price index for industrial workers (CPI-IW), a measure of inflation used to calculate dearness allowance (DA) for government employees, wages for industrial workers and dearness relief for pensioners, an official said, requesting anonymity.
The new series will account for changing spending habits of the working class in the organised sector.
In the new series, the base year for calculating the CPI-IW will be updated from 2001 to 2016. The new series has been necessitated by changing consumption habits, relative prices of various commodities and spending patterns of the country’s workforce in regular jobs.
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In any inflation index, the base year is the first year of an inflation index, with an index value of 100. Inflation indices of all other years is compared to the base year to see how prices vary. The percentage change in this index is what an inflation measure represents.
The new index will assign more weight to spending on services such as education, healthcare, housing, travel and transportation, as spending on these items have gone up, as compared to primary items such as food. The index will help economists, who calculate inflation, to reflect a more accurate picture of a working-class household’s costs.
“The revision is long overdue. Now, it is ready. The new series will be unveiled on October 21,” a labour bureau official said.
At present, India has five consumer price indices (CPIs), three of which are working-class specific. These are CPI-IW for industrial workers, CPI-AL (base 1986-87) for agricultural labour and CPI-RL (base 1986-87) for rural labour. There is also CPI-Urban and CPI Rural. The combined rise in retail prices is captured by CPI Combined. CPIs AL and RL are used to fix minimum wages of agricultural labourers and rural unskilled employees.
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The CPI-IW rose 5.6% in August, as compared to a 5.3% uptick in July, according to latest available data.
The Sixth Pay Commission for Central government employees, among many other reports, had found the current outdated CPI-IW to be a poor estimation of price rise for a basket of commonly consumed commodities.
A labour ministry statement issued on October 16, responding to media reports that salaries could increase once the new series is launched, had said that, although the new series would be out soon, it would be incorrect to assume the change would immediately result in a hike in DA or salaries. A change in salaries would depend on inflation dynamics and how the new series “behaves”, the statement had said.
Experts say India would do better to have broadly two measures of retail inflation such as CPI Urban and CPI Rural. “There are various reports and studies that recommend consolidation of inflation indices. The government is examining these recommendations,” the official said.
According to economist R Gopalan, a former Union finance secretary, long-term data analysis of retail inflation showed that the different inflation series to be converging, making a case for consolidation.
A committee set up by the National Statistical Commission (NSC), an autonomous body that was set up in June 2005 under the recommendation of Dr C Rangarajan Commission, has suggested that CPI-Rural and CPI-Urban could be a substitute for CPI-AL/RL and CPI-IW, respectively.