After nearly 4 decades, govt to revise farm and rural inflation gauges

After nearly 40 years, the central government is planning to revise the base year of the Consumer Price Index for Agricultural Labourers and Rural Labourers (CPI-AL/RL) to better capture inflation experienced by these workers. This is likely to make wage revisions for the rural job guarantee scheme more remunerative.

 

The Labour Bureau has constituted an expert committee, chaired by National Statistical Commission member Asit Kumar Sadhu, to shift the base year from 1986-87 to the 2024-25 agricultural year. The base year for the two indices was last revised nearly three decades ago, in November 1995.

 

“The 1986-87 base year is too outdated now. There has been a sea change over this period. The country has moved forward, and consumption patterns have changed. Unless the indices are revised, they won’t reflect actual consumption patterns. Most importantly, they won’t capture rural and agricultural wages, which are largely linked to them,” said an official.

 

The two indices are used to determine minimum wages for agricultural and rural labourers (engaged in either agricultural or non-agricultural work) by both the central and state governments. Also, CPI-AL is used to determine wages under the government’s flagship rural jobs programme — the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA).

 

“The expert committee will also include representatives from the consumer affairs and statistics ministries, as well as independent experts. The recently released Household Consumption Expenditure Survey is being used for this purpose,” said sources.

 

The Union government is also looking to extend the coverage of the two indices to all states and Union Territories (UTs), as they are currently available only for 20 states/UTs. States or UTs without a dedicated index typically use the index of neighbouring states to determine their minimum wages or MGNREGA wages.

 

Arun Kumar, former professor at Jawaharlal Nehru University, observed that the two indices are crucial because the headline retail inflation figure does not accurately represent a large segment of the rural population, given their distinct consumption patterns. Moreover, to compensate MGNREGA workers for inflation, the rural development ministry calculates the wage rate each financial year based on changes in CPI-AL, which then applies from April 1.

 

“Low-income people, especially in rural areas, spend most of their earnings on food, which is why CPI-AL has a disproportionately high weighting for food items. While the current index, based on 1986-87, is obsolete, we still need a different index to compute inflation as experienced by these sections of the population,” he added.

 

Currently, food has a weighting of 72.9 per cent in CPI-AL and 70.4 per cent in CPI-RL. Other consumption components, such as medical care, have a weighting of only 4.38 per cent in CPI-AL and 4.23 per cent in CPI-RL. Meanwhile, ‘Education, Recreation, and Amusement’ has a meagre weighting of 0.94 per cent in CPI-AL and 0.99 per cent in CPI-RL.

 

The base year for the third price index — the Consumer Price Index for Industrial Workers (CPI-IW) — is also set to be updated from 2016, which was made effective from September 2020, sources added.

 

“We are hopeful the exercise will be completed by next year, and the new series may be released alongside updates to other macroeconomic indicators,” said a source.

 

Currently, the statistics ministry is leading efforts to update the base year for macroeconomic indicators such as gross domestic product, the Index of Industrial Production, and the Consumer Price Index, which are scheduled for release in February 2026. 

ENDING THE 1986-87 ERA  > The base year for the Consumer Price Index for Agricultural and Rural Labourers (CPI-AL/RL) will be revised to 2024-25 from 1986-87

> The current base year has been in effect since November 1995

> The existing CPI-AL (72.9%) and CPI-RL (70.4%) have a disproportionate weighting of food items

>  Both CPI-AL and CPI-RL are used to determine minimum wages and MGNREGS wages