8.4. Consumer Price Index (CPI)

Apart from the WPI, inflation in India is calculated at the consumer level also by the means of CPI. Because the wide disparities in the consumption baskets for different segment of consumers, India had not been able to evolve a single and a comprehensive consumer price index for a long time. The four CPIs adopted by India are:

CPI (Industrial Workers): The Consumer Price Index for the industrial workers (CPI-IW) has 260 items (plus the services) in its basket with 2001 as the base year (the first base year was 1958– 59). The data is collected at 76 centres with one month’s frequency and the index has a time lag of one month. It contains 120–160 commodities in its basket. Basically, this index specifies the government employees (other than banks’ and embassies’ personnel). The wages/salaries of the central government employees are revised on the basis of the changes occurring in this index, the dearness allowance (DA) is announced twice a year. When the Pay Commissions recommend pay revisions, the base is the CPI (IW).

CPI (Urban Non- Manual Employees): The Consumer Price Index for the Urban Non-Manual Employees (CPI-UNME) has 1984–85 as the base year and 146–365 commodities in the basket for which data is collected monthly with two weeks’ time lag.

This index depicts the changes in the level of average retail prices of goods and services consumed by the urban segment of the population. The target group of this index was urban families who derived major portion of their income from non manual occupations in the non- agricultural sector.

This price index has limited use and is basically used for determining dearness allowances (DAs) of employees of some foreign companies operating in India (i.e. airlines, communications, banking, insurance, embassies, and other financial services). It is also used under the Income Tax Act to determine capital gains and by the CSO (Central Statistical Organisation) for deflating selected service sector’s contribution to the GDP at factor cost and current prices to calculate the corresponding figure at constant prices. It has been discontinued since January 2011 because of outdated base year and also CPI (Urban) is brought out.

CPI (Agricultural Labor): The Consumer Price Index for Agricultural Labourers (CPI-AL) has 1986–87 as its base year with 260 commodities in its basket. The data is collected in 600 villages with a monthly frequency and has three weeks’ time lag.

This index is used for revising minimum wages for agricultural labourers in different states.

CPI (Rural Worker): There is yet another Consumer Price Index for the Rural Labourers (CPI-RL) with 1983 as the base year, data is collected at 600 villages on monthly frequency with three weeks’ time lag, and its basket contains 260 commodities.