People's Democracy

GOVT MANIPULATES PRICE INDEX

Working Class Defrauded

M K Pandhe

THE introduction of New Series of Consumer Price Index with 2001 as the base year has been objected to by all the central trade unions. Yet the UPA government unilaterally decided to introduce it, and as a result workers all over India are losing thousands of crores of rupees of Dearness Allowance (DA) every month.

When all the daily papers in India have been reporting steep rise in prices of essential commodities since January 2006, the price index was static at 119 during January, February and March 2006. It has increased by one point only in April reaching 120 while in May it went up by another point to 121. In June 2006 it showed a rise of two points making it 123. Thus during the six months of 2006 the price index increased by only 4 points while in reality it went up much higher. 

The Labour Bureau, which compiles the price index, claimed that the compilation of price index is a highly technical subject and it is observing all scientific methods of calculations of price index. It vouchsafed that the price index correctly reflects the rise in prices of essential commodities consumed by the working class in all the centres.

The CITU has complained to the ILO challenging the correctness of the price index and demanded appointment of an Index Review Committee as was done in 1978. The CITU has demanded stopping the publication of the series till the report is submitted by the committee. 

WHAT IS A PRICE INDEX?

The Consumer Price Index shows changes in the prices paid by the worker every month or every year. He is compensated by dearness allowance linked with price index. The variation is shown every month in a percentage form for better comparison and understanding. Hence, when the price index commences in a particular year, it is called base year and the index always begins with 100. 

The pattern of consumption is not uniform in all social groups and naturally the price index will not be the same for all social groups. Therefore, the government of India compiles separate price indices for the middle class, the working class and the agricultural workers every month.

In order to make the prices comparable it is necessary that the consumption pattern of a workers’ family is properly found out. The items of consumption may vary from centre to centre or from region to region. A list of items consumed by a workers’ family is called a “basket of goods and services” which remains fixed during the period of index series. The items consumed by the workers’ family in different centres and regions may not be the same. When it is said that the consumer price index number was 123 in June 2006 taking 2001 as the base year, it means prices of entire basket of goods and services increased by 23 per cent between 2001 and June 2006 at a national level. 

However, prices of all the items in the basket do not increase uniformly every month. For example, if there are 100 items in the basket there will be 100 times per cent rises of prices every month. Workers do not spend same amount on each item in the basket and therefore making simple average is not correct. Poor workers spend more on food and basic necessities of life while workers having higher income will spend less proportion of expenditure on food and spend more on other necessities of life. The standard of life of a worker is decided by the basket of goods and services he is enjoying. The technical term given to the amount spent on each item of consumption is called “weight”. Hence, it is necessary to find out weight of each item in the consumption basket of a workers’ family. Thus the weight is simply a percentage consumption of a particular item in the total basket of goods and services. It enables us to find out the weighted average which reflects the change in the prices over a month on a year. 

How to find out the consumption pattern of a workers’ family in each centre and how much weight is allotted to each item of consumption? It is required to conduct family budget study of each centre for which consumer price index number is to be compiled. It is therefore necessary that the study should be conducted in a normal year and the prices should be stable. 

After selection of a centre for family budget study, it is necessary to find out a representative sample of families to be covered for the study. The study generally takes one year since all consumption items are to be covered. For instance, purchase of umbrella will be shown only during rainy season while woollen clothes would be purchased only during winter. Even seasonal vegetables vary from season to season. This study is extremely important to make the price index reliable. The selection of sample therefore must reflect the representative character of working class families living in the centre selected for the study. 

MANIPULATIONS IN FAMILY BUDGET STUDIES

The Labour Bureau organised the family budget enquiry by selecting a non-representative sample ignoring vast majority of the unorganised and contract workers’ families who get minimum wages linked with Consumer Price Index numbers. For this purpose, Labour Bureau conducted family budget studies only of the organised sections of the working class. For the purpose of family budget enquiry the Labour Bureau gave the following definition: “The definition of worker as applicable under various Acts governing factories, mines, plantations, ports and docks, public motor transport undertakings, electricity generating and distributing establishments and railways.”

It is admitted by the government that the organised sector constitutes only 8 per cent of the working class. As a result of this definition only the higher income group of working class was taken into consideration and the majority of the low paid unorganised workers who also get DA linked with price index or whose minimum wages are revised taking into account the rise in price index are left out. Naturally the basket of consumption goods and services got distorted adversely affecting the weightage of diagram of the series. For instance, the family budget study shows the percentage of families reporting saving and investment in major cities was as follows: Delhi 79 per cent, Kolkata 20.93 per cent, Mumbai 99 per cent, Bangalore 99 per cent, Ahmedabad 98 per cent, and Chennai 99 per cent. This cannot be the picture of the average family of the working class in these cities.

It is a well-known fact that a large number of casual and contract workers are employed in urban areas. The phenomenon increased sizeably after the advent of globalisation. However, the Family Budget studies shows that most of the employees studied were only regular employees. 

The working class generally spends 60-70 per cent of their income on food items but the study shows overwhelming majority of the workers covered by the family budget study spend less than 45 per cent on food. The picture for major industrial centres reveals a high percentage of workers who spend less than 45 per cent on food –– Delhi (86), Kolkata (76), Mumbai (79), Bangalore (78), Ahmedabad (45) and Chennai (44.15).

With public distribution system virtually collapsing since the NDA government’s assault on it in 1998, the prices of foodgrains have gone up very high while simultaneously there was significant reduction in supply of essential commodities. This left the workers with no alternative but to purchase food items in the open market, obviously resulting in rapid increase of the expenditure on food. However, with the weightage given for food being much less than the rise in prices of foodgrains, the current price index does not suitably reflect this increase. Thus, the manipulations in family budget surveys have effectively sabotaged the interests of the working class.

It is well known that vast majority of the unorganised sector of the working class do not enjoy basic amenities of life. However, the study of the families surveyed showed that the overwhelming majority of the workers are enjoying basic amenities of life. The following table is illustrative:

By purposefully ignoring the pattern of consumption of the workers in the unorganised sector, the Labour Bureau has manipulated to increase the slow moving items in the basket and reduce the fast moving items. This has ultimately resulted in slow movement of price index.

The CITU wrote to the Labour Bureau and the labour ministry to convene a meeting of central trade unions before commencing the work of compilation of family budget studies. However, the suggestion was curtly ignored by the government and the Labour Bureau. 

The unanimous recommendation of the 1978 Index Review Committee emphasised the need for associating trade union representatives in all aspects of preparation and compilation of price index. It suggested that at the all India level a standing advisory committee consisting of representatives of trade unions and organisations of employers, the chairman of the Technical Advisory Committee and Director of the Labour Bureau should be constituted to advise the government on broader issues and provide a continuing forum for consultation relating to the index.

However, these unanimous recommendations of a committee, which included chief of the Central Statistical Organisation of the government and the Director of Labour Bureau, have not been implemented by the governments so far.

The government has failed to control the prices of essential commodities. But it has cleverly used its administrative powers to manipulate the consumer price index numbers in order to keep the index depressed. The price collection machinery is also faulty and several malpractices have been committed by the Labour Bureau.

There is an urgent need to review the whole gamut of issues concerning the compilation of the price index by a tripartite committee consisting of representatives of trade unions, employers organisations, central statistical organisations and the Labour Bureau, particularly to go into the methodology adopted in compilation of the Consumer Price Index Numbers. Without such an in-depth enquiry, the working class will have no faith in the price index. The ILO has also given special emphasis on the need to make the price data reliable. Hence there is urgency to appoint such a committee as demanded unitedly by all the central trade unions. 

Postscript: 

In a meeting with central trade unions on August 19, 2006, the prime minister, Dr Manmohan Singh agreed to constitute Consumer Price Index Review Committee.