AICPIN FAQ-5
21. What prices are used for items being supplied free to the working class ? In case an item is supplied free to entire working class in ...
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21. What prices are used for items being supplied free to the working class ?
In case an item is supplied free to entire working class in a centre, zero price is used in the index. However, if a proportion of working class only gets an item free then a weighted
price, with proportions of working class getting the item free of cost and paying market price as weights, is utilized in the index. No attempt is made to estimate the prices of free items or
impute their weights to other items, as it will not reflect the real situation appropriately. In case an item was free during base period, its price relative is kept frozen at 100 if it is
supplied free now.
22. Which year is taken as a base year and how frequently it is changed?
It has been found by economists that Laspeyre’s Formula when used for an index series for a long period results in upward bias in the index. Further, changes in consumption
pattern over time necessitate revision of weighting diagrams at short intervals to the extent possible. But in India, working class family income and expenditure surveys are generally
conducted after an interval of 10 years, as it had not been feasible so far to conduct such surveys at the shorter interval. Normally, a year during which the family budget enquiry is
conducted or a period not very distant from survey period for which reliable price data are available is adopted as the base year. A period affected by developments of serious nature 12
such as war is not adopted as the base year because it cannot be treated as a normal year economically.
23. How and at what intervals index is compiled?
Index is compiled and released every month with a time lag of about 4 weeks. The index is compiled using Laspeyre’s Formula given below:-
E PnQn
In= -----------*100-----1
E PoQo
Pn
E ( ------*100)PoQo
Po
-In -------------------------------------2`
PoQo
Where:
In = Index Number for current period.
Pn = Price for current period.
Po = Price for base period.
Qo = Quantity for base period.
The weights once determined are kept fixed for life of the series but price relatives are worked out every month with the current prices collected and index moves with the
movement of prices. The index is compiled firstly at sub group level then at group level and lastly at the basket level, which is called general index. Various methodological issues
relating to compilation of indices are decided after consulting TAC.
24. How all India Index is compiled from centre indices?
An all-India index is worked out as a weighted average of 78 centre indices. The weight assigned to each centre is worked out as a proportion of the consumption of
expenditure of estimated number of families allocated to a centre in the State to sum total of all such expenditure over all centres in the country. 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. It may be mentioned here that with the change in number of centres in a state, change in average consumption expenditure and number of families represented by a
centre, centre-weights in all-India index are bound to be different in old and new series.
25. How new series of index numbers are linked with earlier series?
Normally, arithmetic method which involves ratio of the old series indices to the new series indices for the base period is utilised for working out the linking or conversion factor
of the two series. However, ratio method which involves average of the ratio of monthly indices of the two series for the base period has also been tried in the past and it gives similar
results as the arithmetic method. A period longer than base period or later than base period isnormally not preferred because it can affect continuity of two series. However, at times due
to administrative and operational difficulties the release of new series is inordinately delayed and in the meantime the old series is continued. In such cases, two series are linked using
ratio of averages of indices for the 12 months proceeding the month of introduction of new series. This latter approach was followed for linking 1982 series with 2001 series which was
introduced with January, 2006 index. Generally, the two series are linked as such, i.e., It may be added here that two series cannot be expected to show similar trends because of
differences in coverage, methodology, changes in consumption patterns over time, etc.
Source:www.labour bureau.nic.in
In case an item is supplied free to entire working class in a centre, zero price is used in the index. However, if a proportion of working class only gets an item free then a weighted
price, with proportions of working class getting the item free of cost and paying market price as weights, is utilized in the index. No attempt is made to estimate the prices of free items or
impute their weights to other items, as it will not reflect the real situation appropriately. In case an item was free during base period, its price relative is kept frozen at 100 if it is
supplied free now.
22. Which year is taken as a base year and how frequently it is changed?
It has been found by economists that Laspeyre’s Formula when used for an index series for a long period results in upward bias in the index. Further, changes in consumption
pattern over time necessitate revision of weighting diagrams at short intervals to the extent possible. But in India, working class family income and expenditure surveys are generally
conducted after an interval of 10 years, as it had not been feasible so far to conduct such surveys at the shorter interval. Normally, a year during which the family budget enquiry is
conducted or a period not very distant from survey period for which reliable price data are available is adopted as the base year. A period affected by developments of serious nature 12
such as war is not adopted as the base year because it cannot be treated as a normal year economically.
23. How and at what intervals index is compiled?
Index is compiled and released every month with a time lag of about 4 weeks. The index is compiled using Laspeyre’s Formula given below:-
E PnQn
In= -----------*100-----1
E PoQo
Pn
E ( ------*100)PoQo
Po
-In -------------------------------------2`
PoQo
Where:
In = Index Number for current period.
Pn = Price for current period.
Po = Price for base period.
Qo = Quantity for base period.
The weights once determined are kept fixed for life of the series but price relatives are worked out every month with the current prices collected and index moves with the
movement of prices. The index is compiled firstly at sub group level then at group level and lastly at the basket level, which is called general index. Various methodological issues
relating to compilation of indices are decided after consulting TAC.
24. How all India Index is compiled from centre indices?
An all-India index is worked out as a weighted average of 78 centre indices. The weight assigned to each centre is worked out as a proportion of the consumption of
expenditure of estimated number of families allocated to a centre in the State to sum total of all such expenditure over all centres in the country. 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. It may be mentioned here that with the change in number of centres in a state, change in average consumption expenditure and number of families represented by a
centre, centre-weights in all-India index are bound to be different in old and new series.
25. How new series of index numbers are linked with earlier series?
Normally, arithmetic method which involves ratio of the old series indices to the new series indices for the base period is utilised for working out the linking or conversion factor
of the two series. However, ratio method which involves average of the ratio of monthly indices of the two series for the base period has also been tried in the past and it gives similar
results as the arithmetic method. A period longer than base period or later than base period isnormally not preferred because it can affect continuity of two series. However, at times due
to administrative and operational difficulties the release of new series is inordinately delayed and in the meantime the old series is continued. In such cases, two series are linked using
ratio of averages of indices for the 12 months proceeding the month of introduction of new series. This latter approach was followed for linking 1982 series with 2001 series which was
introduced with January, 2006 index. Generally, the two series are linked as such, i.e., It may be added here that two series cannot be expected to show similar trends because of
differences in coverage, methodology, changes in consumption patterns over time, etc.
Source:www.labour bureau.nic.in
