Dearness Allowance linked to Consumer Price Index against inflation

Dearness Allowance linked to Consumer Price Index against inflation

General Secretary of Confederation for Karnataka State Shri P.S.Prasad has written an article on his blog about the Consumer Price Index for the purpose of calculating Dearness allowance to Central Government employees and Pensioners…

The detailed report of article has been reproduced and given below for your information…




The Consumer Price Index is the main base for calculation of Dearness Allowance for the Central Government and State Government Employees and also the Industrial and Bank Employees.

The Consumer Price Index (CPI) is calculated using following steps:
a) Market prices are collected for 252 items by the Officials of Department of Statics and Department of Posts. These prices of that item & place are sent to Central processing unit from 78 centres all over India ( which are enclosed for your reference).
b) The all India weights given the each category of items such as food 49.71%, housing 9.77 %, fuel 9.49% , footwear O.68%, transportation 7.5%, Medical 5.31%, Personnel care 2.92 % & Miscellaneous 26.31% total 100% . CPI points are determined using this all India weights and prices of the 252 items. (which are enclosed for your reference).
Now from the angle of Employees point of view following changes in all India weights should be brought.
a) Housing should be given as 15% instead of just 9.77 %.
b) Medical should be increased to 15% from 5.31 %.
c) The Miscellaneous items should be reduced to just 5% instead of 26.31 %
The prices have risen by over 200% in last 61/2 years, whereas the CPI has shown an increase from 115 points in Jan 2006 to 235 points in July 2013 that means an increase of 120 points and the actual DA is only 92%. There is fault in the calculation of CPI itself apart from present DA formula , as undue all India weights is given for some items such as miscellaneous items such as 26% whatever increase in prices of the food, fuel, transportation, housing are nullified by these 26% decrease in prices or marginal increase in miscellaneous items.
The Employees are not getting the right DA and thus they are not compensated by the real increase in prices which are used for daily needs.
A new series for the calculation of the Consumer Price Index is under preparation by the Government of India. For this purpose, Government has set up a Standing Tripartite Committee (STC) to advise the Government on issues pertaining to the Consumer Price Index for Industrial Workers (New Series).
There are two aspects in this move we should be doubly carefull.
1) There is vast difference between the real price increase and CPI thus an Employee is deprived of the real DA.
2) The Government of India is thinking that the CPI is bloated or wrong that has made burden on the financial burden on them hence it wants to reduce its expenditure by modifying the CPI as a result of this what DA we used to get 10% half yearly and this year by 20%, this can be avoided by next year, hence it is seriously considering the aspect of revising the All India weights of many items such as food which is at 59% to 30%. By this the whole CPI increase will be limited to just 8 to 9 points in a year rather than 25 points in a year by this we get only 3 to 4 % DA every six months rather than 10% DA which we are used to get due to high inflation and drastic rise in prices.
Now the statements issued by Government of India officials ie Reserve Bank Governor Shri D.Subbarao & Shri Kaushik Basu, Chief Economic Advisor, Ministry of Finance, which is enclosed indicate this stand. Instead of employees friendly CPI they want a Government of India friendly CPI.
The wages of CG employees are determined by principle of need based minimum wages as per table 2.21 of 6th CPC report where in only a few items are chosen rather than 252 items chosen by CPI.
I request one and all to be serious about this issue otherwise the Employees will suffer in a long run regarding wrong calculation of CPI and DA issue.
Comradely yours
General Secretary
Please find enclosures ;
Ministry of Labour and Employment, Government of India has decided to prepare a new series of Consumer Price Index for Industrial Workers.
For this purpose, Government has set up a Standing Tripartite Committee (STC) to advise the Government on issues pertaining to the Consumer Price Index for Industrial Workers (New Series).
The STC will go into details of various parameters that are taken into consideration for updation of the base year such as the weighting diagram. consumption basket, selection of centres, sample size of establishments for price collection etc.
Government has no specific information about the skilled/semi-skilled worker outsourced by the Central Government /State Governments through contractors not being paid as per the CPI.
However, the Contract Labour Act, 1970 inter-alia, contains provisions for payment of wages to these category of workers.
The contract workers are also entitled to receive minimum wages as notified by the appropriate Governments from time to time.
This information was given by Minister of State for Labour & Employment Shri Kodikurinil Suresh in the Lok Sabha today in reply to a written question.
MUMBAI: The new series of consumer price index (CPI) is not enough for a robust statistical analysis of prices, Reserve Bank Governor D Suhharao said on Friday.
He also said the new CPI has an excess focus on food prices, which has a 50% weight. House rents, which account for 10%, are also a cause for concern given doubts over the efficacy of the prices, he added.
“The new CPI has only 19 data points which is not sufficient for a statistically robust analysis,” Subbarao, who demits office on September 5, said while speaking at the Statistics Day conference at the RBI headquarters here.
Dearness allowance link brings retail inflation figures under cloud
SMRITI SETH, ET Bureau Jul 19, 2011. 0347am 1ST.
http:/Iarticles.econom ictimes.indiatim 11-07-1 9/news129790925_1 _cpi-iwretail-inflation-wpi-ancl-cpi
NEW DELHI There could be a systemic over-estimation of the retail inflation as measured by the consumer price index for industrial workers, or CPI-1W, as it forms the basis for revision in the dearness allowance of central government employees.
This retail measure of inflation has generally shown a wide divergence with the widely followed wholesale price index (WPI) inflation. “Since the people who collect data for the CPI get their salaries indexed by the same index it actually feeds into some tendency to bloat that,” said Kaushik Basu, Chief Economic Advisor, Ministry of Finance. The CPI-IW is compiled by the Labour Bureau and investigators are employed by state governments – directorate of economics and statistics – to collect the prices.
The index is used to decide the dearness allowance of central government employees, which creates the incentive for bloating up the index. ‘We have found a couple of items that occur in both the WPI and CPI collected by different agencies. We are now tracking these two to see it there is any bias in them. But there are no results as yet,” Basu said. “A team at the ministry of finance is looking at various aspects of inflation, this is one thing we are indeed looking at,” he said. The labour bureau has strongly denied any such possibility and insisted there was no form of manipulation whatsoever.
“Our system is fool proof, there are multiple levels of checks. There is no bias in the data collected,” said an official at the Labour Bureau. Even experts are skeptical of the possibility of such widespread coordination between all those involved in the process. “It may be true and there is an incentive to do that (unfairly bloat the CPI-IW), but one can’t say that without empirical prool “. said Arup Mura, labour and employment professor, IEG.
This needs a nexus, because unless all the officials coordinate it won’t be possible,” added Mitra. The CPI-IW and WPI have shown vastly diverging trends through the years. During 2009, when inflation rate as per the CPI-IW was actually rising above 11%, the WPI inflation rate was falling to negative rates.
Since January 1, 2008 the rate of dearness allowance for central government employees has risen from 12% to 51%, an increase of 39 percentage points. According to a Patnaik, professor, NIPFP, the divergence can be explained by the difference in baskets used for both the indices. She dismissed the collectors’ bias theory, saying, “in a study, we found that the prices for a particular commodity reported under CPI is in line with other sources like the NCDEX, ministry of agriculture data. So evidence doesn’t suggest a bias,” said Patnaik.

CPI—AII India weights -2011

See website:

Sl. NoSub group/ ItemRuralUrbanCombined 
01Cereals and products19.088.7314.59
02Pulses and products3.251.872.65
03Milk and milk products8.596.617.73
04Oils and fats4.672.893.90
05Egg, fish and meat3.382.262.89
08Sugar etc2.411.261.91
09Condiments and spices2.131.161.71
10Non- alcoholic beverages2.042.022.03
11Prepared meals etc2.573.172.83
12Pan, tobacco and Intoxicants2.731.352.13
Food, beverages and tobacco59.3137.1549.71


Sl. NoSub group/ ItemRuralUrbanCombined 
Miscellaneous Items
01Fuel and light10.428.409.49
02Clothing and bedding4.603.344.05
06Medical care6.724.345.69
07Recreation and amusement1.001.991.43
08Transport and communication5.839.847.57
09Personal care and effects3.052.742.92
10Household requisites4.484.304.40

From the above it is quite clear there is no weightage for rural housing & Miscellaneous weightage is much more than required.
Which is effecting DA calculation.

List of 252 Items

1101011rice 1 (other than PDS)
2101012rice 2 (other than PDS)
4101041muri / murmura
5101061wheat (loose) -other than PDS
6101062wheat(loose)- other than PDS
7101071wheat atta(other than PDS)
9101091suji / rawa
10101121bread: bakery
12101151jowar product (specify)
15101251ragi product (specify)
16101261other cereals (specify)
17101281grinding charges18 102011 arhar/ tur
19102021gram: split
20102031gram: whole
23102101other pulses (specify)
24102131other pulse products(specify)
25103031groundnut oil
26103041coconut oil (edible)
27103051other edible oil(saffola/ sunflower etc.) specify
29104021fish (fresh)
30104022fish (fresh)
31104023fish (dry)
32104031goat meat / mutton
34104051buffalo meat
36105011milk (pasteurized)
37105013milk (non-pasteurized -cow)
40105091other milk products (specify)
43106031black pepper
44106041dry chillies
46106061curry powder
47106071oil seeds
48106081other spices: like jeera
49106082other spices: like dhaniya
57107111bitter gourd
59107141jhinga, torai
60107181cabbage61 107191 brinjal
62107201ladys finger
64107221other leafy vegetables (specify)
65107231french beans
67107271chillis: green
71107341other vegetables(specify)
80108191other fresh fruits (specify)
81108201coconut: copra
82108211ground nut
85110011tea: leaf
86110021coffee: powder
87111011tea: cups
88111021coffee: cups
89111071coconut: green (tender)
90111081other beverages (specify)
92111101salted refreshments: specify
93111102salted refreshments: specify
94111103salted refreshments: specify
95111111prepared sweets: specify
96111112prepared sweets: specify
97111113prepared sweets: specify
98111114prepared sweets: specify
99111121cooked meals
102111171jam / jelly
103111181other processed food (corn flakes etc) specify
104112011pan: leaf
107112081cigarettes (filtered)
108112082cigarettes (non- filtered)
109112101leaf tobacco
110112151other tobacco products (specify)
111112201foreign liquor/refined liquor(Indian made)
112201021firewood and chips
113201031electricity (std. unit)
114201041kerosene (open market)
115201051match box
116201071LPG cylinder (domestic)
118201101other fuel (specify)
121401031cloth for shirt
122401032cloth for pyjama
123401034cloth for blouse
124401041cloth for coat (woolen)
125401042cloth for pant/trousers
128401081vest/banian (gents)
129401082brief/underwear (gents)
130401083socks (gents)
131401091ready-made shirt
132401092ready made pant/trousers/jeans
133401093ready made skirt/ frock(child 6-10 years)
134401094ready made top (ladies)
135401095ready made salwar suit
136401101sweater/ pullover (gents)
137401102sweater/ cardigan (ladies)
138401121bed sheet
140401992clothing others (specify)
141401993mats & matting
142402011leather shoes (gents)
143402012leather shoes (children)
144402021leather sandals/chappals (gents)
145402022leather chappals (ladies)
146402023leather sandals/chappals (children)
147402031rubber/ PVC footwear (gents)
148402032rubber/ PVC footwear (ladies)
149402041other footwear (sports shoes etc.) specify
150402990other leather footwear (specify)
151501011pain killer tablet (allopathic)
152501012cough syrup: coscopin plus (above 8 years of age)
153501013vitamin B complex: tablet
154501014anti fever tab. (allopathic)
155501015anti biotic tab (allopathic)156 501016 cough syrup (homeopathic)
157501018tonic (homeopathic)
159501021X-ray(chest) Posterior to anterior view
161501023lipid profile test
162501024blood sugar (fasting & pp) test
163501031doctor’s fee (first consultation)
164501990hospital/nursing home charges
165501991other medical expenses (specify)
166502011primary (5th class) mathematics book
167502012primary (5th class) science book
168502013primary (5th class) local language book
169502014secondary (10th class) mathematics book
170502015secondary (10th class) social science book
171502016secondary (10th class) science book
172502017first year (B.A.) economics book
173502018first year ( B. Com) accountancy book
174502019first year (B.Sc.) mathematics book
175502021newspapers: local
176502022news paper : national
178502041copy/ note book
182502051tuition fees (fifth class)
183502052tuition fees (tenth class)
184502053tuition fees (first year graduation)
185502061private tutor fee (primary)
186502062private tutor fee (secondary)
187502063coaching (professional courses fee)
188502990other educational expenses (specify)
189503011cinema: new release (normal day)
190503021foot ball
191503022cricket bat (regular size)
192503023lawn tennis racket for beginner
193503024carrom board194 503025 playing cards
195503051hiring charges for CD/DVD video cassettes
196503061monthly charges for cable TV connection
197503071transistor/satellite radio
199503992other entertainment(specify)
200504011telephone charges: same operator
201504021mobile phone charges : same operator
202504022mobile phone charges : different operators
203504061taxi fare
204504062auto-rickshaw fare
207504111lubricating oil/engine oil
208504121school bus/van
209504141motor cycle (without accessories)
210504142scooter (without accessories) cost on road
211504151motor car (without accessories)
212505051toilet soap
213505061tooth brush (adult)
214505062tooth paste
215505071telcome powder
216505072snow / cream
218505074body lotion
219505081hair oil
220505082hair dye
222505101shaving blades
223505102shaving razor
224505121sanitary napkins
225505131other toilet articles: (freshener / perfume) specify
226505141flower (fresh)
227506011electric bulb
228506012tube light (without fitting)
229506041plastic bucket
230506051washing soap / detergent
231506061other washing requisite(brush/cleaner etc)
233506081mosquito repellant / insecticides
234506091other petty articles (broom etc.) specify
235506101domestic servant236 506121 miscellaneous expenses: photocopying charges
237506122other consumer services: driver (car)
238506123other consumer services: cleaner (car)
239506124other consumer services: cobbler(shoe repair)
240506141iron almirah
242506201stainless steel (cooking pot)
243506202stainless steel (plate)
245507011hair cutting charges (gent)
246507012hair cutting charges (ladies)
247507021washerman / laundry
248507022ironing charges
249507031tailoring charges for gents pant:
250507032tailoring charge for gents shirt:
251507033tailoring charges for ladies suit:
252507034tailoring charges for blouse:


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