Central Pay Commission and Consumer Price Index (CPI) Revisions
In October, two significant decisions were made by the Indian government affecting economic metrics and employee compensation.
Decisions Overview
- Central Pay Commission (CPC): The Union Cabinet approved the terms of reference for the 8th CPC, with a directive to submit recommendations within 18 months.
- Consumer Price Index (CPI) Revisions: The Statistics Ministry released a discussion paper to seek feedback on proposed changes in calculating housing inflation.
Link between CPC and CPI
Although seemingly unrelated, the revisions in pay and pensions by the 8th CPC may significantly alter India’s inflation figures unless adjustments are made to CPI calculations.
Measuring Housing Inflation
- The current CPI assigns a 10.07% weight to housing inflation, surveyed across over 13,000 homes in 300 towns.
- Government and PSU accommodations use House Rent Allowance (HRA) as a rent proxy, which is linked to the occupant's position rather than market rates.
Issues with Current System
- HRA changes impact CPI calculations without actual changes in market conditions, as seen with the 7th CPC’s impact in 2017.
- In 2017, housing inflation soared due to a 105.6% HRA increase, skewing CPI figures significantly.
Proposed Changes by MoSPI
- Exclude government and employer-provided accommodations from housing inflation measurements.
- Collect rental data monthly instead of biannually, and extend calculations to rural areas.
These changes aim to provide a more accurate representation of real-world rental inflation, crucial as the 8th CPC's recommendations approach.
