CONSUMER PRICE INDEX NUMBERS FOR AGRICULTURAL

CONSUMER PRICE INDEX NUMBERS FOR AGRICULTURAL & RURAL LABOURERS (BASE 1986-87=100) ANNUAL REPORT 2006-07

BACKGROUND AND METHODOLOGY FOR COMPILATION OF THE CONSUMER PRICE INDEX NUMBERS FOR (i) AGRICULTURAL LABOURERS AND (ii) RURAL LABOURERS ON BASE 1986-87=100

The Labour Bureau has been compiling CPI Numbers for Agricultural Labourers since September, 1964. The existing series of CPI Numbers for (i) Agricultural and (ii) Rural Labourers (base 1986-87=100) replaced the hitherto existing earlier series on base 1960-61=100 w.e.f. November, 1995. For compilation of these index numbers, the Field Operations Division (FOD) of the National Sample Survey Organisation (NSSO) collects every month the data on prices from 600 sample villages selected from 20 States in a specially designed price collection schedule, i.e. Schedule 3.01(R). Consumer expenditure data collected by the NSSO during 38^th round of NSS (1983) formed the basis of the Statewise weighting diagrams for the series. The methodology approved by the Technical Advisory Committee on Statistics of Prices and Cost of Living (TAC on SPCL) is followed for compilation of indices for 20 States and all-India separatley for (i) Agricultural and (ii) Rural Labourers and these indices are released on monthly basis by 20^th of every succeeding month.

Rural Labour Households

Rural Labour Households are those households whose income, during the last 365 days, was more from wage paid manual labour (agricultural and/or non-agricultural) than either from paid non-manual employment or from self- employment.

Agricultural Labour households

The rural labour households, who derive 50 per cent or more of their total income from wage paid manual labour in agricultural activities, are treated as agricultural labour households.

Rural Labourer

Rural Labourer is a person who does manual work in rural areas in agricultural and/or non-agricultural occupation in return for wages in cash or kind, or partly in cash and partly in kind.

Agricultural Labourer

A person is treated as an agricultural labourer, if he/she follows one or more of the following agricultural occupations in the capacity of a labourer on hire, whether paid in cash or kind or partly in cash and partly in kind:-

(a) Farming including cultivation, growing and harvesting of any agricultural commodity;

(b) production, cultivation, growing and harvesting of any horticultural commodity;

(e) any practice performed on a farm as incidental to or in conjunction with the farm operations (including any forestry or timbering operations and the preparation for market and delivery to storage or to market or to carriage for transportation of farm products).

The manual work in fisheries was, however, excluded from the category of agricultural labourer. Further, carriage for transportation coming under the category (e) above, referred only to the first stage of transportation from farm to the first stage of disposal.

SCOPE & COVERAGE

The Consumer Price Index Numbers for Agricultural Labour cover the households of agricultural labourers and the Consumer Price Index Numbers for Rural Labour cover the households of rural labourers (including agricultural labourers). The rural retail prices utilised in these two series of index numbers are the same, but the weighting diagrams used for compiling these indices are different. As regards coverage of States, a Technical Working Group on Rural Retail Prices was constituted in 1974 under the Chairmanship of the Director, CSO which recommended 20 States, for which separate series of CPI

Numbers were to be maintained. For Union Territories, the Group felt that an attempt to compile separate series would increase the field work considerably without commensurate increase in utility. Therefore, the Group recommended that the Union Territories could use the index series of the adjoining States.

The State-wise sample sizes were decided by studying the variations in village wise prices in the old series of index numbers and keeping in view the need for constructing State-wise CPI Numbers for (i) Agricultural and (ii) Rural Labourers. The sample size for a State was allocated to the regions within it in proportion to their rural population and in multiples of three. A number of regions were formed within a State, according to similarity of agro-climatic conditions and density of population. Within each region, strata were formed by treating each district as a separate stratum. However, the smaller districts, within a particular NSS region, were merged to form a separate stratum. The allocation to a stratum was generally 3 villages, except in case of 13 Strata (one each in Assam, Karnataka, Manipur and Meghalaya; two each in Jammu & Kashmir, Kerala and West Bengal and three in Orissa) which had six villages each.

The consumer expenditure data collected by the NSSO, in its 38^th Round in 1983, was used for deriving weighting diagrams for all the 20 States and All-India, separately for Agricultural Labourers and Rural Labourers. The average budget derived from the household consumer expenditure survey recorded expenditure on a large number of goods and services. These items of expenditure were divided into two categories viz., (i) non-consumption out-go including unpriceable items, and (ii) consumption expenditure. Only consumption expenditure was taken into account for derivation of weighting diagrams. Expenditure on items like rent and repair of residential buildings or land, direct taxes, priest services (including ceremonial expenditure) and precious jewellery or ornaments ( like gold, silver, pearl, etc.) was treated as non-consumption expenditure and thus excluded from the average budget. The expenditure on rest of the items (including the durable goods) in the average budget was considered as consumption expenditure.

In order to derive weights at item/sub-group/group level and calculation of the index, groups and sub-groups were formed, to the extent possible, on the pattern of of CPI Numbers for industrial workers on base 1982=100 and in pursuance of the recommendations of the TAC on SPCL. The expenditure was categorised into following groups :-

As it was not feasible to include all the items of expenditure in the index basket because of their un-manageability due to large number or existence of items which can not be priced easily or non-availability of regular price data for some of the items, recourse to imputation of expenditure was undertaken.

Imputations were done at four levels, viz., (i) item level, (ii) section level, (iii) sub-group level, and (iv) group level. Item level imputation consisted of straight addition of expenditure of one or more unpriced items to a priced item within the same sub-group/group. Section level imputation consisted of proportionate distribution of expenditure of one or more unpriced items over several priced items which formed a distinct section within a sub-group/group. In such cases, the unpriced items were assumed to follow the combined price trend of more than one priced item within the same section. The remaining two levels of imputation consisted of proportionate distribution of expenditure of one or more unpriced items over all the priced items, included in the sub-group/group. In such cases, an excluded item could not be taken to follow the price trend of any specific priced item of the sub-group/group, nor the combined price trend of a section of included items. The implicit assumption behind the imputation was that the price behaviour of the imputed item was the same as that of the item/section/sub-group/group in which its expenditure had been imputed.

After completion of expenditure imputation process, as envisaged above, the resultant expenditure on each item within a sub-group/group was expressed as percentage of the total expenditure on the sub-group/group to obtain item weights within a sub-group/group. Similarly, sub-group/group weights were derived by working out the percentage expenditure, including sub-group/group level imputations, on each sub-group/group as compared to total consumption expenditure. This provided the weighting diagram for compilation of the Consumer Price Indices for (i) Agricultural and (ii) Rural Labourers of each State. From the State-level weighting diagrams, all-India weights have been derived.

A number of factors are taken into account for determining the base year of the series. A period affected by developments of serious nature such as war, floods, draught etc. is not adopted as the base year because it cannot be treated as a normal year. Generally, a year during which the 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. The base period of the current series has been taken as agricultural year (July, 1986 to June, 1987). Though there is a gap between the weight base (1983) and the comparison base (1986-87), no adjustment in weights has been made owing to differences in price levels between two periods.

SEASONALITY

In the old series (1960-61=100), seasonal items did not feature in the index basket whereas in the current series, the seasonality factor has been taken into account by introducing a separate sub-group “Vegetables & Fruits” within “Food Group”. The price quotations for certain items of this sub-group are not available throughout the year due to their seasonal nature. In order to meet such an exigency, a departure from the principle of fixed basket has been made. Though the sub-group weight for ‘Vegetables and Fruits’ remains fixed throughout the year, yet the weights of the items included in the sub- group may change according to their availability in the market. Only the available items during a month are retained for the purpose of index compilation and the weights of left out items within a given section of the sub-group are imputed to the retained items of the section on pro-rata basis.

The Field Operations Division of the NSSO has been assigned the job and responsibility of collection of rural retail prices every month from shops and markets catering to 600 representative sample villages spread over 66 NSS regions in 20 States. Price collection from these sample villages is staggered over the four weeks of a month, with one-fourth of the sample being covered every week. These prices are collected on the fixed price collection day which may be a "Haat" day for non-daily markets and any market day for daily markets. The price returns are scrutinised and processed in Labour Bureau and the discrepancies, if any, are sorted out through correspondence and field inspections by the staff of the Bureau. Thus, verified and accurate rural retail prices are utilised for index compilation.

For the items which are supplied through Public Distribution System (PDS), the weighted average of fair prices and open market prices are utilised for index compilation. The weight for fair prices is worked out as proportion of the total requirement met through fair price shops and the balance will form weight for open market prices. The availability of these items through PDS will, however, be restricted to the scale of admissibility fixed by the Government. The data in respect of rationed items are collected from selected fair price shops in a specially designed proforma. The Government of India revamped the public distribution system in 1995-96 and a new economic criterion was set up for distribution of rationed items through PDS. Under this system, highly subsidised rates are being charged from the beneficiaries living below poverty line (BPL) and moderate subsidised rates from the beneficiaries living above poverty line (APL). Thus, owing to introduction of this new system two different rates i.e., the BPL rates and the APL rates started flowing in the price schedules in place of a single fair price rate being reported earlier. The information relating to APL cards and BPL cards is being reported separately by the price collectors and used for arriving at weighted average price of rationed items on the basis of the proportion of families living above and below poverty line.

COMPILATION OF INDEX NUMBERS

The indices are compiled separately for each of the 20 States at general as well as at sub-group/group level. In the compilation of the state index, the village-wise price relative of each item is worked out by expressing the current price as a percentage of base year price. A simple average of village wise price relatives is worked out to arrive at regional price relative in the State. Regional price relatives, thus derived, are weighted to arrive at the State level price relatives, the weights being the estimated expenditure of all rural/agricultural labour households in a region as a proportion to expenditure of all the concerned households of all regions in the State. The State index from these state price relatives is worked out by using the Laspeyre’s base weighted formula which is given below:-

The all-India index is worked out as a weighted average of the indices of 20 States, weights being the estimated consumption expenditure of all rural and agricultural labour households in each State as a proportion of corresponding expenditure for all-India. All-India group indices are also compiled by using the State weights in the particular group, derived as a proportion of corresponding expenditure at all-India level.

- Annual Index Numbers for agricultural years and calendar years wherever mentioned in the report, unless specified, are simple averages of 12 months.

- To obtain indices on old series of CPI-AL (Base: 1960-61=100), the index figures of 1986-87 series need to be multiplied by the linking factors as given below:-