A consumer price index (CPI) measures changes in the price level of a market basket of consumer goods and services purchased by households
Though Minimum Wages Act is a Central legislation the enforcement and fixing of minimum wages is done by the State government. Therefore, rates will be different from state to state. Similarly, different states have different scheduled employment coming under the Act. However, there is one common element and that is components of wages. As such wages should consist of a basic minimum rate and variable dearness allowance which varies according to changes in consumer price index.
It is mandatory that all employees should be paid at least the minimum wages (basic + VDA). If your industry is not coming under any of the scheduled employment you have to pay at least the least minimum wages of the notified scheduled employment.
Variable Dearness allowance is calculated on the basis of the consumer price index of the place where the employees work. It will be an amount on each point of increase in CPI over a base index (as notified). For example, if the DA is Rs 15 per point of increase of CPI above 100 points and if the current CPI is 150 then the VDA will be Rs 750 ( Rs 15 X 50)
If you are paying a consolidated amount without any break up as Basic, DA, HRA etc, then the amount should not be less than the sum of basic minimum wages and VDA fixed by the respective government.
Regards,
ISHTIYAQUE
From India
1Though Minimum Wages Act is a Central legislation the enforcement and fixing of minimum wages is done by the State government. Therefore, rates will be different from state to state. Similarly, different states have different scheduled employment coming under the Act. However, there is one common element and that is components of wages. As such wages should consist of a basic minimum rate and variable dearness allowance which varies according to changes in consumer price index.
It is mandatory that all employees should be paid at least the minimum wages (basic + VDA). If your industry is not coming under any of the scheduled employment you have to pay at least the least minimum wages of the notified scheduled employment.
Variable Dearness allowance is calculated on the basis of the consumer price index of the place where the employees work. It will be an amount on each point of increase in CPI over a base index (as notified). For example, if the DA is Rs 15 per point of increase of CPI above 100 points and if the current CPI is 150 then the VDA will be Rs 750 ( Rs 15 X 50)
If you are paying a consolidated amount without any break up as Basic, DA, HRA etc, then the amount should not be less than the sum of basic minimum wages and VDA fixed by the respective government.
Regards,
ISHTIYAQUE
From India
Dear Ritu Mev,
I shall make a brief on Consumer Price Index, its compilation,
its necessity or how it is related with DA etc. Hence I start with DA.
Considering the living cost and all, Wage Revision is being done once in five years or ten years. But inflation will go up day by day and subsequently the money value will come down. To compensate this we have to wait till the next Wage Revision, which is not practical. That is why the DA is introduced.
The devaluation of money can be assessed through Whole Sale Price Index, All India Cosumer Price Index etc. The difference between these two is that, price variation of all commodities are taken into account for Whole Sale Price Index.
But for AICPI there are some differences/ limitations.
1. There is a particular Consumer viz. Industrial Worker.
2. Some specified goods & services are defined, called "basket of goods".
3. Along with the price variation of commodities, its consumable quantity will also be considered.
4. All over India 78 Centres are selected to take average
In India, the All India Consumer Price Index was 1st taken in the year 1960. Percentage of average price is taken as Consumer Price Index. As 1960 being the base year, CPI will be 100 on that year. To calculate the variations there after, I shall quote one example.
A family needs 20kgs of rice, 5Kgs of sugar & 30Ltrs of milk in a month. In a particular interval the price hiked from Rs. 20 from Rs. 25 per Kg for rice, Rs. 20 to Rs. 30 per Kg for Sugar & Rs. 10 to Rs. 13 per Ltr for milk. Then the price at base stage is 20x20+5x20+30x10 = 800 (Base points 100). After price hike it will be 20x25+5x30+30x13 = 1040. Revised point is 1040 / 800 x100 = 130. Here new cosumer price index is 130 and variation in points is 30.
In 1982 October the AICPI is 493. Means Average prices increased by 4.93 times comparing that of 1960.
Based on All India Consumer Price, Industrial DA being paid; variable in quarters commencing from January, April, July & October. I.e. for January the AICPI will be the average of previous September, October & November. Similarly for April it will be December, January & February, for July it will be March, April & May and for October it will be June, July & August respectively.
When the money devaluation is fully compensated it is called as full DA neutralisation. The formula for full DA neutralisation = (Total points - Base points)/ Base points (in percentage). The AICPI is introduced in India in 1960 and revised in 1982 & 2001. AICPI of 2001 x 4.63, we get AICPI of 1982 and AICPI of 1982 x 4.93, we get AICPI of 1960. For DA calculation AICPI of 1960 is accepted as the base.
Now in India mainly two term's wage settlements are in exist; Wage Settlements of 1.1.1997 & 1.1.2007. The base point in 1.1.1997 is 1708 & in 1.1.2007 is 2884.
I shall quote one example,i.e. calculation of AICPI for July '10. This is equalent to average of previous March, April & May; which recorded as 170, 170 & 172 (Base year 2001). Multiply with 4.63 and round, we get 787,787 & 796 (Base year 1982). Multiply with 4.93 and round, we get 3880,3880 & 3924 (Base year 1960). Find average of these 3 and round, we get 3895.
DA for 1.1.97 scale. Total points - 5433, Base points - 1708, Total - Base = 3725. % is 3725/1708 x 100 = 218.1 ( Correct to one decimal).
DA for 1.1.2007 scale. Total points - 3895, Base points - 2884, Total - Base = 2549. % is 2549/2884 x 100 = 88.4 ( Correct to one decimal).
Abbas.P.S,
ITI Ltd.,
PALAKKAD - 678 623,
KERALA
From India, Bangalore
I shall make a brief on Consumer Price Index, its compilation,
its necessity or how it is related with DA etc. Hence I start with DA.
Considering the living cost and all, Wage Revision is being done once in five years or ten years. But inflation will go up day by day and subsequently the money value will come down. To compensate this we have to wait till the next Wage Revision, which is not practical. That is why the DA is introduced.
The devaluation of money can be assessed through Whole Sale Price Index, All India Cosumer Price Index etc. The difference between these two is that, price variation of all commodities are taken into account for Whole Sale Price Index.
But for AICPI there are some differences/ limitations.
1. There is a particular Consumer viz. Industrial Worker.
2. Some specified goods & services are defined, called "basket of goods".
3. Along with the price variation of commodities, its consumable quantity will also be considered.
4. All over India 78 Centres are selected to take average
In India, the All India Consumer Price Index was 1st taken in the year 1960. Percentage of average price is taken as Consumer Price Index. As 1960 being the base year, CPI will be 100 on that year. To calculate the variations there after, I shall quote one example.
A family needs 20kgs of rice, 5Kgs of sugar & 30Ltrs of milk in a month. In a particular interval the price hiked from Rs. 20 from Rs. 25 per Kg for rice, Rs. 20 to Rs. 30 per Kg for Sugar & Rs. 10 to Rs. 13 per Ltr for milk. Then the price at base stage is 20x20+5x20+30x10 = 800 (Base points 100). After price hike it will be 20x25+5x30+30x13 = 1040. Revised point is 1040 / 800 x100 = 130. Here new cosumer price index is 130 and variation in points is 30.
In 1982 October the AICPI is 493. Means Average prices increased by 4.93 times comparing that of 1960.
Based on All India Consumer Price, Industrial DA being paid; variable in quarters commencing from January, April, July & October. I.e. for January the AICPI will be the average of previous September, October & November. Similarly for April it will be December, January & February, for July it will be March, April & May and for October it will be June, July & August respectively.
When the money devaluation is fully compensated it is called as full DA neutralisation. The formula for full DA neutralisation = (Total points - Base points)/ Base points (in percentage). The AICPI is introduced in India in 1960 and revised in 1982 & 2001. AICPI of 2001 x 4.63, we get AICPI of 1982 and AICPI of 1982 x 4.93, we get AICPI of 1960. For DA calculation AICPI of 1960 is accepted as the base.
Now in India mainly two term's wage settlements are in exist; Wage Settlements of 1.1.1997 & 1.1.2007. The base point in 1.1.1997 is 1708 & in 1.1.2007 is 2884.
I shall quote one example,i.e. calculation of AICPI for July '10. This is equalent to average of previous March, April & May; which recorded as 170, 170 & 172 (Base year 2001). Multiply with 4.63 and round, we get 787,787 & 796 (Base year 1982). Multiply with 4.93 and round, we get 3880,3880 & 3924 (Base year 1960). Find average of these 3 and round, we get 3895.
DA for 1.1.97 scale. Total points - 5433, Base points - 1708, Total - Base = 3725. % is 3725/1708 x 100 = 218.1 ( Correct to one decimal).
DA for 1.1.2007 scale. Total points - 3895, Base points - 2884, Total - Base = 2549. % is 2549/2884 x 100 = 88.4 ( Correct to one decimal).
Abbas.P.S,
ITI Ltd.,
PALAKKAD - 678 623,
KERALA
From India, Bangalore
Hi Ritu Mev
In the UK the CPI rate was created to reflect more accurately a certain type of inflation. The traditional rate of inflation quoted was the Retail Prices Index (RPI). This was felt to have significant issues when considering certain segments of the country and also when considering different subject areas. Both have a notinal 'basket of goods' that they monitor for changes in price BUT what exactly is inside that basket of goods varies when you compare the two different types of inflation calculation. For us in the UK the CPI does not include house purchase mortgage information for example. Thus, as mortgage interest rates in the past were climbing this meant the CPI was significantly lower than the RPI which included mortgage interest rates. In the past 4 years or so, mortgage interest rates have been declining and in so doing have had the effect of reducing the gap between the RPI and the CPI figures.
In the UK many employers have had heated debates about not using the RPI to 'fix' wage increases with the trade unions but instead using the CPI. Clearly the trade unions were resistant to this suggestion as it would automatically mean that they would be accepting lower wage increase offers from the employers if they accepted the use of the CPI figure. Depending upon what type of employer you are the use of the CPI arguably becomes more, or less, significant. For manufacturers, for example, the CPI is seen as more relevant as it excludes mortgage interest rates (something manufacturers cannot influence in any way).
Hope some of this helps?
best regards
Derek.
From United Kingdom, Addlestone
In the UK the CPI rate was created to reflect more accurately a certain type of inflation. The traditional rate of inflation quoted was the Retail Prices Index (RPI). This was felt to have significant issues when considering certain segments of the country and also when considering different subject areas. Both have a notinal 'basket of goods' that they monitor for changes in price BUT what exactly is inside that basket of goods varies when you compare the two different types of inflation calculation. For us in the UK the CPI does not include house purchase mortgage information for example. Thus, as mortgage interest rates in the past were climbing this meant the CPI was significantly lower than the RPI which included mortgage interest rates. In the past 4 years or so, mortgage interest rates have been declining and in so doing have had the effect of reducing the gap between the RPI and the CPI figures.
In the UK many employers have had heated debates about not using the RPI to 'fix' wage increases with the trade unions but instead using the CPI. Clearly the trade unions were resistant to this suggestion as it would automatically mean that they would be accepting lower wage increase offers from the employers if they accepted the use of the CPI figure. Depending upon what type of employer you are the use of the CPI arguably becomes more, or less, significant. For manufacturers, for example, the CPI is seen as more relevant as it excludes mortgage interest rates (something manufacturers cannot influence in any way).
Hope some of this helps?
best regards
Derek.
From United Kingdom, Addlestone
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