How Do Price Indices Affect My DA and Wage Components in Tamil Nadu? Seeking Advice

Dear Seniors,

I would like to gather more information on various price indices and their effect on DA. I am from Tamil Nadu and receive information on a monthly basis about various indices, specifically for my district as well.

We do not have VDA but have Basic, DA, and other allowances. Is there any way I can make use of this information? Please advise.

I understand that National/Festival Holidays wages are eligible only if an employee worked on the preceding and succeeding days of a holiday. Is this correct? Please advise.

Dear,

If you don't have VDA as a salary component in your company, then you don't need to worry about CPI. CPI is directly related to VDA and nothing else.

Regards

Hi,

CPI is nothing but VDA. The name is termed differently in different states. CPI stands for Consumer Price Index, and VDA stands for Variable Dearness Allowance. So, both acronyms refer to the same concept.

Regarding the eligibility for receiving holiday wages, an employee must be present either on the succeeding or preceding days of the holiday. If the employee is absent on both the succeeding and preceding days of the holidays, the days in between the absent days are considered as absences, and no holiday wages should be paid by the employer.

Mohan Rao Manager HR

Thank you for the inputs. However, I would like to have a copy of the related (holiday wage) documents or part of the act document for my verification and better understanding.

Dear Mr. Ant 1511,

So I guess that Mr. Rao is not correct on the VDA part. Any comments, please go ahead.

Regards

I also agree with the part of VDA. I think that Mr. Rao is not clear on this part.

Kamal
From Bangladesh

As per Section 79 of the Factories Act, 1948, in case of earned leave, holidays need to be excluded.

Regards,
Girish

My dear Awvik,

It is amazing to find such a lack of awareness. Please do something about it by explaining in detail.

VDA - Variable Dearness Allowance (which is based on CPI). CPI - Consumer Price Index (which is tracked every week by NCAER, FinMin). VDA is in addition to FDA (Fixed Dearness Allowance) and is the variable component of DA. VDA changes every quarter (which is notified) as a percentage change to CPI.

Regards.

Dear Mr. Hansdah,

That's the problem with a few members on this site. They are so confident about themselves that they don't really bother about what comments they are posting. They don't realize that what they are posting is affecting the new generation of HR professionals who are not aware of such complicated matters as VDA or CPI. They are getting the wrong information, which in turn is affecting their HR knowledge.

By the way, I have posted earlier on matters related to VDA and CPI. So, if anyone is interested, he or she can check my earlier post.

Regards

Again, can anyone explain the mathematical relationship between CPI and VDA? On an increase of how many points should we raise wages and at what rate?

Dear Mr. Ramesan,

If you think that VDA and CPI can be explained in one or two paragraphs, then I am sorry to say that you have greatly mistaken. Your question may be very simple, but trust me, the answer is really very difficult to explain. Even if I explain, you would not be able to understand, as VDA is a huge and complicated area. I can guarantee that not many HR people across India, and I mean India, have an in-depth knowledge of VDA. I doubt whether anyone in this forum would be able to make you understand the entire nuances of VDA calculation. So, my suggestion would be that you find some person in your area who is an industrial and labor law expert and who deals with such matters in his own company and discuss the matter with him. I think that would be the ideal solution for you.

Regards

Mr. Rao is correct in terms of the continuous leave if the person avails leave on the preceding and succeeding the paid festival or national holiday. The total leave will be calculated as 3 days leave, and it will be deducted from the person's leave credit.

K. Gopalakrishnan

Dear Awvik,

Thank you for your timely intervention and making this point very clear. Also, can you help me find any good books where I can sharpen my knowledge in this area?

Dear Ramesan,

Thank you very much for understanding my point. Sorry to say once again that no book gives you a detailed understanding of VDA. At least I haven't seen one. You have to know it from someone who is dealing in this matter. I myself did that and that's when I realized what VDA is all about. It's a huge area, and no book can explain in such detail. You need to know a lot of things to understand what VDA is all about. Only then can you start thinking of the calculation of VDA.

Regards

Mr. Ramesan,

You can develop the formula as per the below guidelines.

A = S x (Xn - Xo) / Xo

A = Amount to be added in VDA in the quarter under consideration.

S = Basic

X0 = Base CPI Index (Reference index)

Xn = Revised CPI Index during the quarter under consideration.

Dear Mr. Ponraj,

Brilliant! I never knew that the calculation of VDA was so easy. Now, could you please tell me, if my basic is 3000, Xn = 1000, and Xo = 1020, what would be the amount added to my existing VDA?

Eagerly waiting for your reply.

Regards

Mr. Avik,

Thank you for your (sarcastic) reply. I am not aware of how the VDA is being revised every quarter. The guideline formula that I provided is used to calculate the escalation amount of the contract price for the price variation of inputs.

Mr. Ponraj,

Please understand that VDA is not an easy subject. Please don't post such things about which you are not confident and which may lead to further confusion. Let people know the hard way; otherwise, it may lead to serious problems in the future for the new generation of HR professionals.

Regards,

By the way, sorry for the sarcasm.

I agree. It is quite a detailed subject. Moreover, it is complicated by the fact that there are systems (salary & wages administration policy) with 100% neutralization of DA and some where it is not so. In addition to it, DA for Govt. employees is administered in a different way; whereas it is different for, say, PSUs which are in the manufacturing/industrial sector; based on the All India Consumer Price Index Number for Industrial Workers. Right, Awvik?

Dear Seniors,

I have posted this query. What should I understand from this discussion, or can anyone help me to find a good book on this subject?

Please advise.

Understanding Wage Revision and DA Calculation

Considering the cost of living and all, wage revision is being done once every five or ten years. However, inflation increases day by day, and subsequently, the value of money decreases. To compensate for this, we have to wait until the next wage revision, which is not practical. That is why the DA (Dearness Allowance) is introduced.

The devaluation of money can be assessed through the Wholesale Price Index and the All India Consumer Price Index (AICPI), etc. The difference between these two is that the price variation of all commodities is taken into account for the Wholesale Price Index.

Limitations of AICPI

- There is a particular consumer, viz. the Industrial Worker.
- Some specified goods and services are defined, called the "basket of goods."
- Along with the price variation of commodities, their consumable quantity is also considered.
- Across India, 78 centers are selected to take an average.

Based on the All India Consumer Price, Industrial DA is paid, variable in quarters commencing from January, April, July, and October. For January, the AICPI will be the average of the previous September, October, and November. Similarly, for April, it will be December, January, and February; for July, it will be March, April, and May; and for October, it will be June, July, and August respectively.

When the money devaluation is fully compensated, it is called full DA neutralization. The formula for full DA neutralization is: (Total points - Base points) / Base points (in percentage). The AICPI was introduced in India in 1960 and revised in 1982 and 2001. AICPI of 2001 x 4.63 gives us AICPI of 1982, and AICPI of 1982 x 4.93 gives us AICPI of 1960. For DA calculation, AICPI of 1960 is accepted as the base.

Wage Settlements in India

Currently, in India, mainly two terms of wage settlements exist: Wage Settlements of 1.1.1997 and 1.1.2007. The base point in 1.1.1997 is 1708, and in 1.1.2007 is 2884.

I shall quote one example, i.e., the calculation of AICPI for July '10. This is equivalent to the average of the previous March, April, and May, which is recorded as 170, 170, and 172 (Base year 2001). Multiply by 4.63 and round, we get 787, 787, and 796 (Base year 1982). Multiply by 4.93 and round, we get 3880, 3880, and 3924 (Base year 1960). Find the average of these three and round, we get 3895.

DA Calculation Examples

- DA for 1.1.97 scale: Total points - 3895, Base points - 1708, Total - Base = 2187. The percentage is 2187/1708 x 100 = 128.0 (Correct to one decimal).
- DA for 1.1.2007 scale: Total points - 3895, Base points - 2884, Total - Base = 1011. The percentage is 1011/2884 x 100 = 35.1 (Correct to one decimal).

I shall insert an Excel sheet for IDA calculation w.e.f 1.10.2008. You may extend the rows further (as necessary) and just enter the three indexes towards the year 2001 in green-colored columns. The results will appear in yellow, and red is used for static information.

With regards,

ABBAS.P.S,
Secretary,
ITI Employees' Association,
ITI Limited, PALAKKAD - 678 623,
KERALA, INDIA.

+91 [Phone Number Removed For Privacy Reasons]

AICPI (base 2001) can be obtained from the following site: http://labourbureau.nic.in/indexes.htm