Outdated consumer price indices for farm and rural labourers cry for change

Much has changed in the past quarter century regarding the needs of the blue-collar worker in India’s villages, and that is what makes the piquancy stark: the base year for measuring the country’s consumer price inflation for both agriculture and rural labourers still dates back to 1986-87.

In fact, consumer price index for agriculture labourers (CPI-AL) is instrumental in adjusting the wages for the colossal Mahatma Gandhi National Rural Employment Generating Scheme (MGNREGS), for which the government has set aside roughly Rs 40,000 crore this fiscal. Yet, this index, along with consumer price index for rural labourers (CPI-RL), has been the most neglected of the lot — it has not been revised for a quarter century now.

People living in rural areas and engaged in manual labour by working in farming and/or non-agricultural occupations in return for wages are considered as rural labour. They, thus, include both agricultural and other labourers.

The weights assigned for both the indices, released by the Shimla-based Labour Bureau, are based on the estimates of the 38th round of National Sample Survey (NSS) on household consumption expenditure data for 1983-84. A mammoth 69.15 per cent weight is assigned to the food items in the CPI (AL) and 66.77 per cent in CPI(RL).

Comparing the consumer expenditure of the rural section from the NSS data of 1987-88 and 2009-10, a major decline of 10 per cent is observed in expenditure on food items. Food expenditure as a proportion of total households consumption spending fell from 64 per cent in 1987 to 53.6 per cent in 2009.

A reverse trend is observed in the non-food items. The expenditure for non-food items as proportion of total households spending rose 10 per cent in 2009 compared to 1987. The rural population spent 46.4 per cent of their total consumption expenditure on non-food in 2009-10 versus only 36 per cent in 1987-88.

The data show that rural section is spending less and less on food items with each passing year while their spending on the non-food items is going up each year.

True, the NSS survey pertains to the entire rural people and not just rural and agriculture labourers, but the trend shows that consumption pattern of these two classes have also undergone a change, according to analysts.

The declining trend in food items can be credited to the falling cereal consumption, which can be seen from the steadily falling expenditure on cereals from 26.3 per cent of total consumption expenditure in 1987-88 to 15.6 per cent in 2009-10.

Amongst the non-food basket, a steady rise can be tracked in fuel & light, clothing and bedding, durable goods and miscellaneous goods and services.

Notes an official from the labour bureau: “The food prices are more volatile in nature, compared to the consumer durables. The CPI(AL) and CPI(RL) sees upward volatility, due to the higher weights of the food items.”

Why is there such a bias, when all the other major indices have been revised to the period after 2000? According to Pronab Sen, Principal Advisor, Planning Commission, revising the base year is an extremely complex and cumbersome process. “Maybe that is dissuading the officials from updating the index,” he notes, adding that the government faces resistance from the trade unions as the section is uncertain about the impact of revision.

CPI(AL) and CPI(RL) capture data from 600 villages across the 20 states of the country on a monthly basis using retail prices in respect of 260 items of goods and services. “The revision,” says a prominent economist, “is tedious as it involves changing of centres, which tags on politics.”

However, a labour bureau official told Business Standard that a proposal for the revision of base year for CPI (AL) and CPI (RL) was sent to the union labour ministry in 2010, but the approval is yet to come. “Earlier, the labour bureau had suggested 2004-05 as the base year, but the ministry wanted something more recent,” he said, on condition of anonymity.

The official says the new base year could be 2010-11, and the weights would be assigned on the basis of the NSS consumption expenditure data of 2010-11 that would be out next year. “It’s essential that these indices are revised every 10 years in order to give realistic figures. We are taking this matter very seriously now.”