Context: Recently, the Labour and Employment Ministry has revised the base year of the Consumer Price Index (CPI) for Industrial Workers (CPI-IW) from 2001 to 2016.

• Earlier, the series were also revised from 1944 to 1949; 1949 to 1960; 1960 to 1982 and 1982 to 2001.

About Consumer Price Index (CPI) for Industrial Workers

• The CPI-IW is mainly used for determining dearness allowance (DA) paid to central/state government employees and workers in the industrial sectors besides measuring inflation in retail prices, fixation and revision of minimum wages in scheduled employments.
• CPI-IW is compiled and maintained by the Labour Bureau, an attached office of the Ministry of Labour & Employment.USAGE OF CPI-IW

CPI-IW  is used:

• To regulate the dearness allowance (DA) of government staff and industrial workers.
• Apart from measuring inflation in retail prices.
• To revise minimum wages in scheduled employments.
• After this Index, the government is expected to announce a new series of the CPI for agriculture workers, which is currently using the base year of 1986-87.

Need for Base years 

• Base years are required to facilitate inter-year comparisons of various data.  if an index is using 2011-12 as the base year, data of all future years will be calculated based on the data of the index in 2011-12, for the purpose of comparison.
• Example: Let’s say the cost of a basket of goods in an index was Rs 6 lakh in the base year (2016), and has been set to an index value of 100. If in 2017,  the basket cost has been increased to Rs 6.6 lakh, the index equivalent would be 110.
• The inflation rate will be computed by comparing 110 which is today’s value to the base value which is 100, resulting in a 10% increase.
• Base years are used to nullify the impact of inflation on the data and project the actual estimates.

Thus, for selecting a year as the base year, certain requirements should be fulfilled, such as:

• The year must be a normal year and not have experienced any abnormal incidents such as earthquakes, droughts, floods,  etc.
• No abnormal economic activity like Hyper rise in price should have taken place.
• Base year should not be very far from the current year.

Additional Information
Consumer Price Index

• It measures price changes from the perspective of a retail buyer. It is released by the National Statistical Office (NSO).
• The CPI calculates the difference in the price of commodities and services such as food, medical care, education, electronics etc, which Indian consumers buy for use.
• The CPI has several sub-groups including food and beverages, fuel and light, housing and clothing, bedding and footwear.

At present, India has five consumer price indexes (CPIs), three of which are working-class specific. These are:

1. CPI for Industrial Workers (IW)
2. CPI for Agricultural Labourer (AL)
3. CPI for Rural Labourer (RL)

These three indexes are compiled by the Labour Bureau in the Ministry of Labour and Employment.

• CPIs AL and RL are used to fix minimum wages of agricultural labourers and rural unskilled employees.
• The Labour Bureau is also expected to bring out the new series of the CPI- AL/RL, which currently has the base year of 1986-87 by August 2021.
• The other two are CPI-Urban and CPI Rural. These two indexes are compiled by the National Statistical Office (NSO) in the Ministry of Statistics and Programme Implementation.
• The combined rise in retail prices is captured by CPI Combined.
• A committee set up by the National Statistical Commission (NSC) in 2005 under the recommendation of Dr C Rangarajan Commission, has suggested that CPI-Rural and CPI-Urban could be a substitute for CPI-AL/RL and CPI-IW, respectively.

Difference between CPI and WPI