Government Set-Up a New Inflation index for Working Class, No Impact on Dearness Allowance

On Thursday, Labour and Employment Minister Santosh Kumar Gangwar introduced the new set of consumer price index for industrial workers (CPI-IW), which is used by the policymakers and for fixing the dearness allowance of employees. It is, however, a measure of inflation used to calculate dearness allowance for government employees, wages for industrial workers and dearness relief for pensioners.

The Labour Bureau Director General D P S Negi said that the linking factor for the conversion of the new set or series to the old one is 2.88 whereas, under the new series, the CPI-IW for September 2020 stood at 118. Moreover, the Consumer price index base year is being revised from 2001 and under the previous base, the CPI-IW for august 2020 stood at 338. The Consumer Price index (CPI-IW) for august would be 117.4. So, this means and as Negi said that as of date, the index will have no impact on dearness allowance and it will remain as it is.

Besides, the new inflation index assigns more weight to spending on services such as healthcare, education, housing, travel and transportation, as expenditure on these items has increased compared to the expenditure on primary articles such as food. This will, however, help the economists who calculate inflation to perceive a more error-free picture of a working-class household’s costs.

Ashok Grewal, labour economists who advised the erstwhile Planning Commission said “That will depend on inflation dynamics in the long run and once the detailed methodology is released, it will be possible to comment on the changes”. The government, additionally, said that the index would be revised every five years, and salaries or dearness allowance would not rise immediately.

Currently, India has five consumer price indices (CPI’s), three of which are working-class determined and CPI’s AL and RL are used to fix minimum wages of agricultural labourers and rural unskilled employees.