Considering the cost of living and other factors, wage revision is typically done once every five or ten years. However, with inflation on the rise daily, the value of money decreases over time. Waiting until the next wage revision to compensate for this is not practical, which is why Dearness Allowance (DA) is introduced.
Understanding Indices for Money Devaluation
The devaluation of money can be measured using indices such as the Wholesale Price Index and the All India Consumer Price Index. The key distinction between these two indices is that the Wholesale Price Index considers price variations of all commodities.
On the other hand, the All India Consumer Price Index has certain limitations:
1. It focuses on a specific consumer group, namely Industrial Workers.
2. It defines a set of goods and services known as the "basket of goods."
3. It takes into account both the price variation of commodities and their consumable quantities.
4. A total of 78 centers across India are selected to calculate the average.
Determining Industrial DA
Industrial DA is determined based on the All India Consumer Price Index and is paid quarterly, starting in January, April, July, and October. For example, the AICPI for January is the average of the previous September, October, and November readings. Similarly, for April, it is based on December, January, and February; for July, March, April, and May; and for October, June, July, and August.
Full DA Neutralization
When full compensation for money devaluation is achieved, it is referred to as full DA neutralization. The formula for full DA neutralization is calculated as (Total points - Base points) / Base points (in percentage). The All India Consumer Price Index was introduced in India in 1960 and revised in 1982 and 2001. The base for DA calculation is the AICPI of 1960.
For wage settlements in India, two significant points are considered: 1.1.1997 and 1.1.2007, with base points of 1708 and 2884, respectively.
An example calculation for AICPI in July '10 involves averaging the numbers from the previous March, April, and May. By applying the relevant multipliers, the final AICPI for that period can be determined.
The details for IDA calculation starting from 1.10.2008 are provided in an Excel sheet, with green columns reserved for entering the necessary indexes towards the year 2001. The results will be displayed in yellow, while red indicates static information.
Regards, Abbas.P.S