The Ministry of Labour and Employment has recently unveiled the new series of Consumer Price Index for Industrial Workers (CPI-IW). The revised series uses 2016 as the base year, replacing the previous series that used 2001 as the base. The CPI-IW is a critical aspect of measuring inflation in retail prices and determining the dearness allowance (DA) provided to government employees and industrial workers. Besides this, it also plays a pivotal role in figuring out and revising minimum wages in different employments.
The Evolution of CPI-IW
In the past, the base year for the CPI-IW series has been revised several times, shifting from 1944 to 1949, then from 1949 to 1960, 1960 to 1982, and finally from 1982 to 2001. The Labour Bureau, an office associated with the Ministry of Labour & Employment, is responsible for maintaining and compiling the CPI-IW.
Key Components of the New Series
The new series focuses on the most recent consumption patterns of the target populace. It assigns more importance to expenditure on health, education, recreation, and other miscellaneous items, lessening the weight of food and beverages. The weight of spending on housing and clothing has increased from 15.2% to 17%. The importance of miscellaneous items such as education and health has risen to 30.31% from 23.26%, while the weightage of food and beverage is decreased to 39% from 46.2%.
Noteworthy Changes in the New Series
There are several noteworthy adjustments in the new series. The sample size for working class family income and expenditure surveys was increased from 41,040 families to 48,384. Additionally, the number of selected markets for collecting retail price data increased from 289 to 317. The index basket now includes 463 items, as opposed to the previous count of 392 in the 2001 series.
Effects of the New Series
The revised series won’t have an immediate impact on the dearness allowance (DA) as its biannual hike has been frozen by the government since January 2020 amid the coronavirus pandemic. However, the change in the base year will undoubtedly have implications on DA calculations from June 2021 onwards, when the DA freeze is expected to be lifted.
The Consumer Price Index: An Overview
The CPI calculates price variations from a retail buyer’s perspective. It covers price changes for commodities and services such as food, medical care, education, electronics, and more. In India, three out of the five consumer price indexes are specific to the working class. These indexes, compiled by the Labour Bureau, include CPI for Industrial Workers, CPI for Agricultural Laborer, and CPI for Rural Laborer.
Future Plans for the CPI
The Labour Bureau is anticipating rolling out a new series of the CPI for Agricultural Laborer/Rural Laborer, which currently uses 1986-87 as the base year, by August 2021. A committee established by the National Statistical Commission in 2005 recommended that CPI-Rural and CPI-Urban could serve as substitutes for CPI-AL/RL and CPI-IW, respectively.
Significance of the New Series
The revised series serves as a crucial reference for researchers, scholars, academics, and other stakeholders involved with CPI-IW, providing more internationally applicable data. Furthermore, it supports the measurements of key macroeconomic indicators of the Indian economy. As per recommendations from the International Labour Organisation (ILO), Index Review Committee (IRC), and National Statistical Commission (NSC), the base year of price index numbers should be updated frequently, generally not exceeding 10 years, to accurately reflect changes in consumer consumption habits.
