Base-ic change

What the revision of a three-decade-old inflation index may mean for rural wages

- SHIVA RAJORA

As the day draws to a close, Nanhe Ram (50), who is waiting outside his contractor's cabin, laments that he has been receiving the same dihaadi (daily wage) for the past four years.

"I hope the contractor doesn't deduct my wages this month," he says. "Last month, I got less than what was due. Wages are hardly ever revised, and I can barely make ends meet with what I earn."

In India, both the central and state governments fix the minimum wage for a number of occupations identified as scheduled employment. These wages are revised periodically in line with inflation. For this, the government relies on two consumer price indices for agriculture and rural labour (CPI-AL/RL).

The primary reason for Singh's plight is that an outdated base year is used to calculate inflation for workers.

Arun Kumar, a retired Jawaharlal Nehru University professor, says the two indices are crucial because the general headline retail inflation figure does not accurately represent a large segment of the rural population given their distinct consumption patterns.

"Low-income people, especially in rural areas, spend most of their earnings on food, which is very different from the way people in urban areas or with higher incomes spend," he explains.

A new base year Last month, after nearly three decades since its last iteration in November 1995, the Centre revised the base year for CPI-AL/RL to better capture price increases. The exercise is part of a broader effort by the government to introduce new series for several key macroeconomic indicators, including the index of industrial production (IIP), gross domestic product (GDP), and CPI.

The new base year for CPI-AL/RL is 2019.