CPI-IW BASE YEAR REVISED TO 2016
CONTEXT
- Recently, the Ministry of Labour and Employment released the new series of Consumer Price Index for Industrial Worker (CPI-IW) with base year 2016. The new series of CPI-IW with base 2016 has replaced the existing series with base 2001.
NEED FOR CHANGE OF BASE YEAR
- The Government of India has constituted Expert Committees which recommended Base year updation at a gap should not exceed 10 years
- The main objective of the exercise is to bring out the new series of All-India and individual centre wise Consumer Price Indices for Industrial Workers based on the latest consumption pattern of the working class population.
- The consumption pattern of the working class population has undergone change over a period of time and therefore, it becomes necessary that the consumption basket is updated from time to time to account for these changes and thus to maintain the representative character of the
- It is a well-established fact that use of Laspeyres type formula for Index Compilation tends to overestimate the index as the deviation from the base year increases. Therefore, base updation at regular intervals is crucial to control this upward bias.
- Any desirable change at technical level to absorb best international practices can be
EFFECT
- The new series would not have an immediate impact on the dearness allowance (DA) as the government has freezed biannual hike in dearness allowances since January 2020 to offset the financial implications on the exchequer during the coronavirus pandemic.
o The DA, a component of salary, is revised every six months to keep pace with the inflation rate.
o For private sector workers, the central government and most states increase the variable DA component 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 DA calculation by june 2021, when the freezing on DA will come to end.