The Seventh Pay Commission had decided to choose the CPI-IW as the index for adjusting inflation for central government employees.
Salaries of around 30 million industrial workers are set to rise as a government-led committee has approved a new base year for the consumer price index (CPI) for such workforce.
The move will also benefit around 4.8 million central government employees, whose dearness allowance (DA) - a component of salary which undergoes revision to keep pace with the inflation rate in the economy - is linked to this inflation index.
A standing tripartite committee, led by Principal Labour and Employment Advisor B N Nanda, met on February 27 and gave the nod to the new series of the CPI for Industrial Workers (CPI-IW), keeping 2016 as the base year.
“The move will benefit 30 million organised industrial workers of the country, and central government and state government employees, along with public sector unit workers, since the DA is based on the CPI-IW.
"The DA will undergo a drastic change after the government’s approval,” Nanda, who superannuated on February 28, told Business Standard.
The DA of the central government and private sector employees is updated to adjust for inflation every six months.
The Seventh Pay Commission had decided to choose the CPI-IW as the index for adjusting inflation for central government employees.
Even trade unions in the private sector use the CPI-IW to negotiate for the minimum wage of workers.
The CPI-IW hasn’t undergone revision since 2001 - an exercise which should usually take place every five years.
The old base for the CPI has become outdated as the consumption patterns of households have changed drastically in the past two decades.
The prices of the basket of certain goods and services are tracked for mapping inflation.
The CPI-IW with the base year 2016 will give more weight to non-food items than the food ones compared to the 2001 index, according to a copy of the presentation given to the committee, which met on February 27.
To develop the new index, the National Statistical Office conducted a survey of over 48,000 working families, tracking their consumption patterns, during January-December 2016.
The new series will cover 28 states and Union Territories against 24 and cover 317 markets compared to 289 used for the 2001 index.
The weight for food and beverages components will decline from 46 per cent to 39 per cent in the new series.
On the other hand, the weight for non-food items such as education, health, entertainment and recreation, household goods and services, transport and communication is set to jump from 23 per cent in 2001 to 30 per cent in 2016.
“The consumption pattern of families belonging to the working class is in consonance with other indicators which show that there is a shift in expenditure on non-food items from food items.
"The new index will be updated and keep this factor in mind,” a person who is aware of the deliberations said, requesting anonymity.
As prices of non-food items rise at higher rate than food items, the DA component of salaries of industrial workers and others would see higher hike if new CPI-IW is taken into account than the existing one.
After the committee’s approval last week, a national tripartite committee led by Labour and Employment Minister Santosh Kumar Gangwar will meet to approve the new CPI-IW index.
This will be followed up by an approval from the Union Cabinet.
