Methodology For Compilation of Consumer Price Index Numbers For Industrial Workers

Methodology For Compilation of Consumer Price Index Numbers For Industrial Workers (Base: 1982=100)

Introduction:

The Consumer Price Index Numbers which measure a change over time in prices of a given basket of goods & services are being compiled with effect from the period immediately following the First World War. Some provincial Governments started conducting Family Budget Enquiries and compilation of Consumer Price Index Numbers for some cities in the country. All these Enquiries were rudimentary in nature. Since 1943 the Central Government took upon itself the job of compilation and maintenance of Consumer Price Index Numbers in pursuance of the recommendations of the Rau Court of Enquiry (1948). The concepts, procedures and definitions for compilation of the Consumer Price Index Numbers in the early phases were not found very scientific to build up an All-India Index. It was only when the Family Living Survey 1958-59 was launched at 50 important industrial centres of the country, based on the guide lines laid down by the Technical Advisory Committee on Cost of Living Index Numbers (constituted by the Government in 1954), that the compilation of a reliable index on uniform lines was started in the country. The Consumer Price Index Numbers for Industrial Workers (CPI-IW) for 50 centres and All-India weighted index on base 1960=100 was started on the basis of the Weighting Diagram drawn by conducting the Family Living Survey (FLS) in 1958-59. The current series (1982=100) replaced the old (1960=100) series with effect from October, 1988.

Scope and Coverage :

The Consumer Price Index Numbers for Industrial Workers on base 1960=100 (old series) was compiled for Industrial Workers relating to factories, mines and plantations.But for the new series of Index Numbers on base 1982=100, the coverage of the Industrial Workers were increased to seven sectors viz. (a) factories, (b) mines, (c) plantations, (d) railways, (e) public motor transport undertakings, (f) electricity generation and distribution establishments, and (g) ports and docks. A Working Class Family is defined as one where one of the members worked as manual worker in one of the 7 sectors as listed above and which derived one half or more of its income through manual work.

The Consumer Price Index is compiled for Industrial Workers residing in 70 selected centres in the country.The All-India Consumer Price Index for Industrial Workers is based on these 70 centre indices.These centres have been selected on the basis of industrial importance in the country in the first instance and then distributed among different states in proportion to the industrial employment in the state subject to maximum allotment of 5 centres in a state to a sector.In addition to these centres Labour Bureau on the request of the State Governments, is also compiling Consumer Price Index Numbers in respect of 6 additional centres viz. (i) Kothagudem, (ii) Goa, (iii) Himachal Pradesh , (iv) Chhindwara, (v) Bhilwara &(vi) Tripura, by up-dating their different base years to that of 1982=100.

Source of Weights- Working Class Family Income and Expenditure Survey, 1981-82:

The Weighting Diagram for the Index was derived by conducting Working Class Family Income and Expenditure Survey, 1981-82 in all 76 selected centres.

A Family Income & Expenditure Schedule was devised in which the information was canvassed on family budget covering consumption expenditure over a wide range of goods and services on which the selected families incurred expenditure. Some related information was also canvassed in this schedule. Simultaneously, another schedule on House Rent was also canvassed which formed the basis for six monthly repeat house rent surveys.

The enquiry was conducted over the period of 12 months in each centre during, 1981-82 when an equal number of a moving sample of families were canvassed every month. The field work was carried out by the National Sample Survey Organisation(NSSO).

The data collected through this survey was tabulated for the purpose of derivation of Weighting Diagram and bringing out the analytical reports on the results of survey.

DERIVATION OF WEIGHTING DIAGRAM:

i) Item Weight:

Weights are meant to indicate the importance attached to the different items of goods and services, consumed by the worker in a given basket.It is a common knowledge that people do not spend the same amount of money on different items of consumption. It will, therefore, not be correct to treat the percentage changes in the prices of all the items included in the basket as of equal importance.Accordingly each item in the index is given what is called in technical language a Weight to represent the relative importance of the price charged in a given pattern of consumption.As, it is, not feasible to monitor the price behaviour of all the items on which index population reported consumption expenditure (nor it is necessary) a number of representative items are retained in the index basket which are manageable over time. For this purpose the first step is to form a group of items which meet similar or related demands of the consumers.

The total expenditure on consumption of goods and services was divided into the following groups/sub-groups:

I-  Food :

(a).Cereals & Products

(b).Pulses & Products

(c).Oils & Fats

(d).Meat, Fish & Eggs

(e).Milk & Milk Products

(f).Condiments & Spices

(g).Vegetables & Fruits

(h).Other Food 

II-Pan, Supari, Tobacco & Intoxicants;

III-Fuel & Light :

IV-Housing;

V-Clothing, Bedding & Footwear, and

VI-Miscellaneous :

(a).Medical Care & Effects

(b).Education, Recreation & Amusement

(c).Transport & Communication

(d).Personal Care & Effects

(e).Others

The items retained in the basket are those which a) account for substantial fraction of expenditure in the Group/Sub-Group (generally one percent or more); (b) represent the price trends of other items; and c) are price able over the life of the series. The expenditure incurred on the items which are left out is imputed to the expenditure of the related items/sub-groups/group depending upon their similarity of want, manufacturing process or price behaviour etc. , as the case may be. The percentage expenditure on each item in the sub-group/group represents its weight. Similarly, the percentage expenditure on sub-group/group in the Group/Total consumption expenditure represent their weight. In this process, the whole set of weights are derived, which is popularly known as Weighting Diagram. 

ii) Centre Weight:

The centre weight is determined by taking product of average consumption expenditure and number of families represented by a centre as a ratio of sum of such products over all the centres. For this purpose each centre is presumed to represent equal share of the working class families in a state. However, if the actual number of families in a centre exceeds the assumed share, its share is taken as the actual number of families. For deriving the number of families in a state, the average daily employment in respect of the sectors covered for the survey is divided by the average number of earners in the state .

Item Coverage :

The coverage of items in the index basket is on the basis of the expenditure incurred by the index population as reflected in the Working Class Family Income & Expenditure Survey, conducted in the base year 1981-82.Once the items for retention in the basket are determined on the basis of WCFI&ES, representative items/varieties for the purpose of pricing are selected on the basis of judgmental sampling, by conducting a market survey in each of the centre. The varieties and the specifications of the item are determined on the basis of consultation with the representatives of the Trade Unions of Industrial Workers and actual observations of popularity of the items in the selected shops of the selected market.These items are arranged in groups and sub-groups as indicated above for the purpose of price collection and compilation of index numbers.

Prices and their types :

The retail prices are another major component of Consumer Price index numbers. As the base year is generally one complete year of 12 months, the base year prices are taken as an average prices of 12 months of the year. The retail prices are those paid by the Consumer and include taxes paid by him. However, rebates and discounts, where allowed to consumers in general are taken into account. Thus, the transaction prices, i.e. actually paid by the consumer, of all the selected goods and services are collected for the compilation of index numbers. However, in case of few items which are supplied to the consumers through fair price shops, under the scheme of the Public Distribution System, the fair prices administered by the authorities are also collected for the purpose of arriving at weighted average prices of controlled and open market prices of these items.

Periodicity of Price Collection :

The items covered in the basket are divided into three main categories for the purpose of price collection depending upon the frequency of price collection namely weekly, monthly and half-yearly :

i).The prices of some items such as cereals, pulses, oils and fats, meat, fish, condiments, vegetable etc. which are sensitive and change frequently, are collected on weekly basis.

ii).Prices of items like cinema, furniture, utensils, clothing, house-hold appliances etc. are collected on monthly basis as their prices do not change very frequently.

iii).The prices of items like house rent, school/college fees and books are collected once in six months.

The prices of all the items retained in index basket are collected on a fixed price collection day every week/month by the part-time price collectors, who are officials of the State Governments working in Directorate of Economics & Statistics or Labour Departments. While collecting prices various elements like fixity of markets, shops, specifications, unit of purchase, day and time of price quotations etc. are maintained for the purpose of comparability.

The prices, after receiving the same at Head-Quarter, are scrutinized and examined for their correctness and veracity. The discrepancies, if any, are sorted out in consultation with the price collectors/price supervisors through correspondence, over telephone and/or price audit in markets by the staff of the Bureau. Various special problems arising during the life of the series with respect to prices or other specifications are sorted out by undertaking small field surveys etc. 

Pricing of Housing and Housing Index:

Rent is the only item which is priced for compiling housing index. Actual rents of the rented houses, comparable rents for owner - occupied houses are taken into consideration. For rent free houses, rent index is taken as 100. Thus, for compiling the housing group index, three separate indices are compiled for free, rented and owned houses and these indices are combined by using their respective weights, which are proportion of families residing in these three categories of houses, to work out the weighted housing index. Housing group index is compiled by following the Chain Base method, in which rent movements are compared with the last six monthly period and not with the base period.Rental data are collected by the field officials of Labour Bureau, twice a year from a sample of dwellings through a half yearly House Rent Survey and rent index is calculated once in every six months viz., Jan. and July and kept constant for the following five months.

Compilation of Index:

The index is compiled by using Laspeyres base weighted formula, which is given below.

Where:

In =Index Numbers

Pn = Price for current period

Po = Proce for base period

Qo = Quantity for base period

In the first stage price quotations of an item in all outlets of all the markets in a month are averaged for a centre. On the basis of this average centre price a price relative (over base period price) is worked out. However, in case of items which are supplied through subsidised outlets (fair price shop also) the procedure is slightly different. In their case first the weighted average price of open market and fair price outlets in each selected market of a centre is worked out (weights being availability ratio in the respective outlets in that month).In the next stage a simple average of these market prices is worked out to arrive at the centre price. The sub-group group Index is worked out as a weighted average of item/sub-group Index, respectively, the general index of a centre is worked out as weighted average of group indices.

Thus, the index for each centre is derived in several stages, i.e. sub-group, group and general (all combined)

An All-India index is a weighted average of 70 centresindices. These 70 centres are allocated to different states on the basis of proportion of industrial worker employment in them. The weight assigned to each centre is the proportion of the estimated consumer expenditure of the centre to the aggregate consumer expenditure of all the centres, as explained earlier.