Consumer Price Index for Industrial Workers "EMPOWER IAS"

 

News:

• The Labour and Employment Ministry recently revised the base year of the Consumer Price Index for Industrial Workers (CPI-IW) from 2001 to 2016.

 

About:

• The Consumer Price Index (CPI) is a measure that examines the weighted average of prices of a basket of consumer goods and services, such as transportation, food, and medical care. It is calculated by taking price changes for each item in the predetermined basket of goods and averaging them.
• The Labour and Employment Ministry revised the base year of the Consumer Price Index for Industrial Workers (CPI-IW) from 2001 to 2016 to reflect the changing consumption pattern, giving more weightage to spending on health, education, recreation and other miscellaneous expenses, while reducing the weight of food and beverages.
• CPI-IW is a vital economic indicator which measures the changes in prices of goods and service consumed by the index population.

 

Who Maintains the CPI?

In India, there are four consumer price index numbers, which are calculated, and these are as follows:

 

• CPI for Industrial Workers (IW)
• CPI for Agricultural Labourers (AL)
• CPI for Rural Labourers (RL) and
• CPI for Urban Non-Manual Employees (UNME).
• While the Ministry of Statistics and Program Implementation collects CPI (UNME) data and compiles it, the remaining three are collected by the Labour Bureau in the Ministry of Labour.

 

Benefit of the Index:

• Apart from measuring inflation in retail prices, the CPI-IW was used to regulate the DA of government employees and industrial workers, as well as fixing and revising minimum wages in scheduled employments.
• Changes in the CPI are used to assess price changes associated with the cost of living. The CPI is one of the most frequently used statistics for identifying periods of inflation or deflation.

 

Key Points:

• The new series with base year 2016 covers the latest consumption pattern of the target population.
• It gives more weightage to spending on health, education, recreation and other miscellaneous expenses, while reducing the weight of food and beverages.
• The weight of spending on housing and clothing increased from 15.2% to 17%.
• The weight of miscellaneous items, like education and health rose to 30.31% from 23.26%.
• The weight of food and beverage was reduced from 46.2% to 39% and indicates an increase in disposable income.
• The number of markets and the sample size for working class family income and expenditure surveys were increased.
• The sample size was increased from 41,040 families to 48,384, also the number of selected markets for collecting retail price data was increased from 289 to 317.
• The number of items in the index basket has increased to 463 items as against 392 items in the 2001 series.
• The Labour Bureau is also working towards revising the index every five years.

 

The rationale behind the move:

• The new base year would better reflect the changing consumption pattern.
• It would be giving more weightage to spending on health, education, recreation and other miscellaneous expenses while reducing the weight of food and beverages.
• The weight of food and beverages has declined over time whereas the weight of miscellaneous groups has increased substantially under the 2016 series vis-à-vis earlier series. 
• Compilation as per international best practices & guidelines of ILO :
• As per the recommendations of International labour organisation (ILO), Index Review Committee (IRC), and National Statistical Commission (NSC), the base year of price index numbers should be revised at frequent intervals generally not exceeding 10 years

 

Way Forward:

• The new series will serve as a useful reference book for researchers, academicians, scholars and all other stakeholders of CPI-IW.
• The improvements made in the new series will make it more comparable at international level. It will help in measurements of macroeconomic indicators of the Indian economy.
• As per the recommendations of International Labour Organisation (ILO), Index Review Committee (IRC) and National Statistical Commission (NSC) the base year of price index numbers should be revised at frequent intervals generally not exceeding 10 years to reflect the changes that take place in the consumption pattern of consumers.