Comprehensive News & Analysis

30-10-2020 | 11:00 AM

Consumer Price Index for Industrial Workers Base Year Revised to 2016

Context

On October 22, the Ministry of Labour and Employment has recently released the updated series of Consumer Price Index for Industrial Workers (CPI-IW), shifting the base year to 2016 from 2001.

Key Highlights

• Labour Minister Santosh Gangwar released the new series of Consumer Price Index for industrial workers on October 22.
• The new Base 2016 CPI-IW series has replaced the previous Base 2001 series.
• The revision in base year will reflect the changing consumption pattern of the working-class population over the years.
• The new series has been launched to reflect the change in consumption pattern.
• The new indicators have given more weightage to health, education, recreation and other miscellaneous expenditures.
  • The weight of food and beverages has been reduced from 46.2% to 39% and it indicates an increase in disposable income.
  • The weight of spending on housing and clothing has increased from 15.2% to 17%.
  • The weight of the fuel and light segment will now have a weight of 5.5 % as against 6.43% earlier.
  • Pan, supari, tobacco and intoxicants will hold weight of 2.07% as against 2.27%.
  • The number of items added to the new basket rose from 392 to 463.
• There is increased in the number of markets and the sample size for working class family income and expenditure surveys.
• It has no impact on the dearness allowance.
• The series has been revised earlier as: 1944 to 1949; 1949 to 1960; 1960 to 1982 and 1982 to 2001.
• The Labour Bureau is working towards revising the index after every five years.

About CPI-IW

The CPI-IW is mainly used to decide dearness allowance paid to the central and state government employees and workers in the industrial sectors besides measuring inflation in retail prices, fixation and revision of minimum wages in scheduled employments. CPI-IW is compiled and maintained by the Labour Bureau which is an attached office of the Ministry of Labour & Employment.

The Effect of newly released CPI-IW

• The new series will not have an immediate impact on the dearness allowance as since January 2020, the government has freezed biannual hike in dearness allowances to offset the financial implications on the exchequer during the coronavirus pandemic.
• To keep pace with the inflation rate, the DA is revised every six months.
• For private sector employees, the central government and most states raise the variable DA part of minimum wages twice a year based on the CPI-IW inflation numbers.
• However, the change in base year will certainly have an effect on dearness allowance calculation by june 2021, when the freezing on DA will come to end.