AICPIN Formula Linking Factor | Change of Base Year of CPI (IW) 2001 to 2016

The Government released the official formula for converting the old AICPIN Base Year 2006 to the new AICPIN 2016 Base Year

The Consumer Price Index for Industrial Workers (CPI-IW) serves as a measure of the variation in prices related to labor. Prior to August 2020, the CPI-IW was based on the year 2001. However, as of September 2020, the base year for the CPI-IW has been updated to 2016, as published by the Reserve Bank of India (RBI).

To calculate the amount of price variation in labor, the following formula is utilized: L = W x (LQ-LB)/LB x (LC/100). Here, L represents the amount of price variation in labor, W denotes the gross value of work performed by the contractor, excluding the cost of materials provided by the railway at a fixed price. It should be noted that any specific payments made to consultants engaged by contractors are also excluded from this calculation.

LB refers to the Consumer Price Index for Industrial Workers-All India, as published in the RBI bulletin for the base period. LQ represents the Consumer Price Index for Industrial Workers-All India, as published in the RBI bulletin for the average price index of the three months within the quarter under consideration. Finally, LC represents the percentage of the labor component.

In order to determine the CPI (IW) of September 2020 for the base year 2001, the following equation is used: Sept 2020 CPl (IW) of Base Year 2001 = Sept 2020 CPl (IW) of Base Year 2016 x Linking Factor, which is calculated as 118 – x 2.88 = 339.84. Additionally, LQ is computed as (336+338+339.84)/3, resulting in a value of 337.95.

CPI-IW Base Year Change

Government of India
Ministry of Railways
(Railway Board)

No. 2021/CE-I/EDCE(G)/Misc./3/LabourIndex

New Delhi, Dated 06.09.2021

To,
As per list attached

Sub: Change of Base Year of Consumer Price Index of Industrial Workers (Labour Index)

1. RBI has published Consumer Price Index for Industrial Workers, CPI (IW), with the base year 2001 up to, August 2020. After August 2020, CPI(IW) has been published by RBI with the base year 2016. The base year of Consumer Price Index for Industrial Workers i.e. CPI (IW) has been changed from year 2001 to year 2016 with effect from September 2020. Further, RBI has provided a linking factor of 2.88 between the old series and the revised series.

2. The Clause 46A of GCC deals with the price variation clause in contracts. Formulae used for the calculation of the amount of variation in the price for labour components require consumer price index for industrial worker-All India; published in RBI Bulletin.

3. The issue has been examined. It has been decided by Board (MI, MF) to adopt above linking factor of 2.88 for linking index of Base year 2001 and 2016. Example for applying linking factor is as under:

The amount of variation in prices in labour is worked out by the following formulae

L = W x (LQ-LB)/LB x (LC/100)

L­ – Amount of price variation in Labour
W – Gross value of work done by Contractor as per on-account bill(s) excluding cost of material supplied by railway at fixed price, minus the price value of cement and steel. This will also exclude specific payment, if any, to be made to the consultants engaged by Contractors (such payment shall be indicated in the Contractor’s offer)

LB – Cosumer Price Index for Industrial Workers- All India: Published in RBI bulletin for the base period

LQ – Consumer Price Index for Industrial Workers-·All India: Published in RBI bulletin for the average ·price index of the 3 months of the quarter under consideration

LC – % of labour Component

Sept 2020 CPl (IW} of Base Year 2001= Sept 2020 CPl (IW) of Base Year 2016 x Linking Factor i.e 118-x 2.88 = 339.84

LQ = (336+338+339.84)/3 i.e 337.95

4. This issues with ‘the concurrence of Finance Directorate of Ministry of Railways.

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