National Commission on Labour (1967)||
31.27 We now come to the more controversial part of the statistical work done in the Labour Bureau at the Centre and in the offices of the Labour Commissioner and Director of State Statistical Bureau, in different States, viz., the compilation of the Consumer Price Index (hereafter referred to as 'the index'). Though the index at certain centres is old, its compilation did not attract attention almost till the eve of Independence. The index fluctuated within a small range and even where fluctuations were wide, nothing of importance in employer-employee relations was dependent on these fluctuations except in certain centres. The consumption pattern did not undergo any major variation either2. The criticism against the index as not reflecting the reality of price change is a more recent phenomenon; and this criticism is voiced in many quarters.
31.28 With the rise in prices as a consequence of the Second World War, a part of the workers' emoluments (dearness allowance) in certain industries got linked with the local index where available, or the index of a convenient centre acceptable to the parties. In the early years of this linking, employers did not appear to be unduly concerned about it, but towards the close of the war and thereafter, the size of dearness allowance became so disproportionate to the basic earnings that the index attracted serious attention. Employers felt that it overstated the rise in price; workers equally strongly complained of deliberate under-estimation. The Government also has a primary interest in the authenticity of the index, as a bias one way or the other, if any, is not conducive to industrial harmony and its correction for any supposed error may adversely affect its own revenues and expenditure. On occasions the controversy did not confine itself within the constituents of the tripartite; it acquired a political dimension. The high stakes which the index has acquired in recent years call for a more detailed discussion of the various processes which build up the final index. Since the all-India series is built on the basis of indices for individual centres, it is the latter which require detailed examination.
31.29 It is important to recognise that the index merely measures the relative change in the value of a fixed basket of goods and services consumed by that part of the population for which it is relevant—in this case the working class. The
1 Even a major change in the compilation of the index consequent on introduction of distribution control in certain essential commodities in the food group did not attract attention when it was introduced during the years of the Second World War.
basket is initially valued at the base period, or a period as near the base as possible. To determine its composition a family budget inquiry in the working class localities is undertaken. Such an inquiry has necessarily to be on a sample basis and spread over a period of one year to remove seasonal variations in consumption. The sample itself is so chosen as to keep the errors within predetermined limits. The number of items on which consumption expenditure is recorded is necessarily large.1 However, for determining the relative proportion of total expenditure on different items in the base period, a smaller list is considered adequate. Items left out are either unimportant or their price behaviour could be linked with similar items included in the basket. Once the relative importance of different items in the basket, technically known as 'weight', is ascertained on the basis of expenditure on them in the base period, it is only the monthly changes in the prices of these items that are needed for working out the index.
31.30 The main elements which have a bearing on the index and around which the controversy centres are: (a) the base period which determines the weights, its distance from the year it is in usage;
(b) the machinery and manner of price collection;
(c) the method of compilation; and (a) the disappearance from the market of commodities included in the basket. We now examine the criticism against each of these elements.
31.31 (a) It is accepted that, as one moves away from the base, particularly in situations of shortages to which the community has been subjected in recent years, the basket itself undergoes a change and working out changes in the cost of buying the old basket may become unrealistic. The interim all-India Index which was current for a major part of the period under reference suffered an additional criticism because it was not compiled on the basis of simultaneous inquiries at different centres, the indices for which were combined into the all-India index; nor did the methods of inquiry have anything in common. The base year adopted for the all-India series was 1949, while the component series had base periods ranging from 1926 to 1944. With effect from the index for August, 1968, the old series has been replaced by the one with the year 1960 as base. This new series is based on a larger number of centres, the inquiries for which were conducted simultaneously and with uniform concepts, definitions and methods. We may refer in passing to the resistance that developed to the publication of the new series (the 1960 series) and discontinuance of the old, which was held up for over five years due to difficulties in arriving at an acceptable linking factor between the old and the new. The link had to be established by technical studies which were admittedly complex because the old series had currency for long at several centres.
31.32 The Labour Bureau worked out the linking factor for different centres by studying the movement of the two series over a period of time. While this mechanical linking was not objected to the final results were challenged by workers' organisations on the ground that before the link was established the old series required corrections which were long overdue. This criticism led to the appointment by many State Governments of Expert Committees to go into the question of suitable link for the indices current in the State. The Committees did discover deficiencies in the old series mainly arising out of the fact that price changes for some items in the clothing groups and house rent had not been revised over long periods. They corrected these deficiencies and recalculated the linking factor for each centre. It may be added that in the new series of indices (1960-100) steps have been taken to revise the house rent indices at half yearly intervals and also collect alternative prices for articles included in the index, so that deficiencies of the type which arose in the case of the old series may not recur.
31.33 (b) Part of the criticism against the machinery for price collection, we think, is un-found-ed, though some of it could be valid. A major difficulty in this area has been that in the years since Independence, the varieties of commodities included in the basket have been changing somewhat rapidly; as a result there is a qualitative change in the basket. On occasions, the rates quoted for old varieties could be so high that it would be unrealistic to compute the index on that basis. This apart, the manner of collection of prices has also been a point of complaint from employers and workers alike. To them there appears to be an element of 'casualness' about it. In view of the importance of this issue, we have examined the related evidence. Our conclusion is that if the alleged casualness were true, an examination of the trend of indices at various centres would have thrown up this defect in terms of relative variations from centre to centre, unless the price collection machinery was 'casual' at all centres. Since we do not accept this larger charge and since the relative variations are not wide we consider that 'casualness' is not established. There is even stronger evidence to reject it. The index of wholesale prices is maintained by an entirely
1 In the 1958-59 inquiry some 350 items were included in the budget. In the earlier inquiries the number differed from centre to centre, but the total was about 150 items.
different agency; it has a separate price collection machinery. As an economic indicator, it is considered to be one of the sensitive indices. It is used for major economic policies. Over a period, the price trends of comparable sets of commodities in the two series are not dissimilar. Significant correlation exists between comparable groups in the two series; and such correlation could not have been consistently revealed if the alleged defects existed in the machinery for price collection.
31.34 (c) and (d). The method of compilation, once the prices and weights are known, is mere arithmetic. This point is now commonly accepted, though on occasions complaints are made at individual centres. We are convinced that these are due to inadequacy of communication between the agency that compiles the index and its users. Every interest, which has to live with the index, recognises that in the days of shortages, changes in use of commodities according to availabilities will be quite common. The compilation of the index has necessarily to be adjusted to take account of the inevitability of substitutions. What the users do not appreciate is their being kept in the dark about these changes. We believe that more satisfaction could be given to users in these matters by the authorities showing readiness to supply such technical and other information to parties as is required.
31.35 The CLS concluded that--
(i) the new All-India Index with 1960 as base constitutes a distinct improvement over the interim series with 1949 as base;
(ii') at present the index numbers are available only for different centres and for all-India. It is necessary to introduce an index which will be representative of change in prices at the State level.
In endorsing the conclusion at (i), we note that the Labour Bureau has proposals for conducting fresh family living surveys during 1969-70 to bring out a new all-India Index series on the basis thereof. We recommend that the switchover from the 1960 series to the proposed 1969-70 series should be expedited. We believe that with experience already gained and by using time-saving- facilities for tabulation that are now available, the new index will be available early.
31.36 The compilation of State series has found general acceptance in the evidence before us. We would, however, caution that more centres in each State will have to be covered to make the resulting index to be representative of changes in the States. This will mean additional expenditure' In recognition of this, the CLS suggested that the expenditure to be incurred in compiling the series appropriate at the State level should be shared by the Central and State Governments. We do not recognise any special need for this series in every State, but in regard to States which need it, we do not recommend sharing of additional expenditure between the concerned State and the Centre.
31.37 The fact that both employers and workers have attacked some aspects of the series from their respective view-points, should have been a sufficient justification to accept the validity of the index. We recognise, however, that the stakes involved are high and a stronger justification to establish the technical soundness of the series is needed. The Supreme Court in 19651 had an occasion to examine the series and the procedures adopted by the authorities in its compilation. The Court concluded that for the purposes for which the index was used, the series did not suffer from inadequacies of the type attributed to it. Even so, it may be necessary to give to the users of indices greater satisfaction. The main reason for the criticism is that the user* do not have a feeling of having been adequately consulted. This seems to be a legitimate feeling. We recommend that arrangements should be made for consultation on the following lines:
(i) A formal avenue of consultation should be provided at the time the family budget inquiries, which are the basis for determining the weights of a Series, are planned. It is not sufficient that decisions are taken on sound technical grounds. They must appear so to users who should be reasonably satisfied that (a) the delimitation of industrial areas, (b) the size of the sample, (c) the manner of sampling, (d) the items to be included in the schedule on which information is canvassed, and (e) the type of questions posed in the process of collecting information, are planned with a view to securing dependable results.
(ii) The selection of shops from which price data are collected presents no difficulty. The current arrangements for seeking information, not only on the variety of the commodity which is in use but also on similar varieties, have been made with reasonable caution. They provide data for linking the price changes in a variety which is disappearing with those of the variety which will continue in the market. The users should know what the alternative varieties are and why they have been considered to be so. An arrangement by which they are informed of the prices which are used in the compilation of the index should be made. This could be achieved by displaying
1 Civil Appeals NOT 167 to 173, 537 and 538 of 1965 dated 10th August, 1965—Labour Law Journal, 1966, Vol. I, pp. 1-34.
a chart of prices collected during the week area-wise in the office of the Labour Commissioner. Users could voice any doubts about the prices displayed before the authority in charge of compilation and the authority should get these doubts clarified through an appropriate check by an officer who is senior in rank to the one who collects prices. The prices used in the final compilation should also be published.
(iii) The work of compilation of the index, though merely a matter of arithmetic, does raise some problems on occasions. It is best, therefore, that the main responsibility for compiling the series of indices should rest with the Labour Bureau. Those State Governments who want to be associated with the compilation of these indices should be allowed to do so; but the initiative and conclusive decisions in regard to the indices should remain with the Labour Bureau. Before the indices are released, they should be checked for their correctness by a committee consisting of the Director, Labour Bureau and a representative each of the Central Statistical Organisation and the Office of the Economic Adviser (Ministry of Industrial Development and Company Affairs). This procedure should not, however, result in delays in releasing the indices.
(iv) There should be a more acceptable procedure for introducing changes in the commodities, the prices of which go into the compilation of the index. It would be of help if the manner of introducing these changes, the technical problems involved and the way they are proposed to be tackled, are explained to the users through the usual channels open to the authority compiling the index.
(v) The family budget inquiries which form the basis of determining the 'weights' should be undertaken once in ten years and the work on linking of the old and the new series should be completed before the old series is discontinued. The process should be ordinarily over within two years of the completion of the enquiry.