Base year shifted to 2016

 Base year shifted to 2016

• The government launched the new series for retail inflation for industrial workers shifting the base year to 2016 from 2001.
• The CPI-IW is mainly used for determining the dearness allowance (DA) paid to central/state government employees and workers in the industrial sectors besides fixation and revision of minimum wages in scheduled employments.
• The new series also incorporates the changes in the consumption pattern of the working-class families since the earlier the base year of 2001. Under the new series, the weightage for the food group has gone down to 39.17 percent from 46.2 percent in the 2001 series, while the weight of miscellaneous items, like education and health, has risen to 30.31 percent from 23.26 percent.
• In the new 2016 series, 88 centers have been covered as against 78 centers in the 2001 series. The sample size for the conduct of Working-Class Family Income and Expenditure Survey, based on which weighting diagrams have been derived, was increased to 48,384 families from 41,040 in the 2001 series
• The number of selected markets for collection of retail price data has also been increased to 317 under the 2016 series compared to 289 covered in the 2001 series. The number of items directly retained in the index basket has increased to 463 items over 392 items in the old series.
• It’s been said that the dearness allowance is linked to an outdated index, but hereon, the aim is to keep revising the series every five years.
• As per the recommendations of the International Labour Organization (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.

 There are SIX major Retail Inflation Indices published by the Government:

• CPI-Rural,  CPI- Urban, CPI Combined published monthly for all India as well as States/UTs by NSO under Ministry of Statistics & Programme Implementation.
• CPI-Industrial Workers (IW), CPI Agricultural Labourers (AL) and CPI Rural Labourers published monthly for all India as well as States/UTs by Labour Bureau under Ministry of Labour and Employment.
• Out of these 6 indices, CPI-Combined and CPI-IW are quite important
• RBI for its monetary policy purpose uses/targets CPI combined inflation index
• MGNREGA workers wages are revised annually linked with CPI-AL. A committee set up by Govt has recommended linking it with CPI-Rural but till now no information on it.
• Dearness Allowance (DA) paid to Central/State Govt. employees and workers in the Industrial sector and revision of minimum wages in scheduled employments (State Government fixes minimum wages in a different category of employments called scheduled employment as per the existing act, but it may change in new Act) is linked with CPI-IW
• CPI-IW base year has been revised to 2016 from the previous 2001 and because of that weight of food items has decreased to 39.17% from earlier 46.2%. Weight of education and health has increased to 30.31 per cent from 23.26 per cent. No need to go into further details of the weights of different items.
• Industrial Workers may be consuming a lot of items but every month it's not possible for the government to collect the price details of all these items from all the markets in India. So Govt. selects a basket of those items which are consumed more by these industrial workers for example in the 2016 series of CPI-IW there are 463 items and govt. will be collecting the price data from 317 retail markets in India. The basket of 463 items is assigned weight as per the expenditure/consumption pattern of these workers on these items. Higher the consumption of any item higher will be the weight.
• It is recommended that the base year should be revised frequently to reflect the changes that take place in the consumption pattern of consumers. Govt. plans to revise it after every five years. And the base year should be normal because in any abnormal year, the consumption patterns will not properly get reflected and it may be skewed. 
• Why Govt. did not use 2017 or 2018 for revision of base year of CPI-IW. The answer maybe there were disruptions because of GST. (GST got implemented on 1st July 2017)
• Why not 2019. The answer is maybe the exact data of just the previous year not available 
• But someone may say that Demonetisation was implemented in 2016, then why govt chose 2016 for the base year for CPI-IW. The answer could be (not sure) Demonetisation was implemented at the end of the year (8th Nov 2016) and if Govt. used the data only of 10/11 months to derive the weights then there is no issue or maybe it did some extrapolation (projection) for the 50 days period post demonetisation. You don't need to go into all this. But yes, it should be a normal year.

Source: Indian Express