AICPIN – All India Consumer Price Index – Calculation of DA and DR

AICPIN (All India Consumer Price Index for Industrial Workers) for Calculating DA and DR

The Consumer Price Index (CPI) for Industrial Workers, based on the 2001=100 index, is primarily used by Central Government employees and pensioners. This index plays a crucial role in determining the Dearness Allowance percentage. The Labour Bureau releases statistics on the CPI (IW) every month through its official portal, with the All-India Consumer Price Index for Industrial Workers (AICPIN) for the succeeding month being released on the last working day of each month.

The Central Government has introduced a new formula to convert the AICPIN base year from 2001 to 2016, using a linking factor to convert the old series to the new series.

Regarding the AICPIN, it is important to understand the concept of a linking factor. In 2006, the base year for AICPIN was changed from 1982=100 to 2001=100. The linking factor serves as a connection between these two series. For the All-India series, the linking factor between 1982 and 2001 is 4.63. The 6th Pay Commission had recommended this change, which was subsequently continued by the 7th Pay Commission.

The fitment factor plays a crucial role in calculating the Dearness Allowance. It is determined by taking the average AICPIN of the last 12 months. For example, in the case of the 6th CPC tenure (2006-2016), the fitment factor is based on the average index of 2015, which is 261.42.

To convert the AICPIN from the 2016 series to the 2001 series, a linking factor of 2.88 is used. This means that each AICPIN value from the 2016 series is multiplied by 2.88 to obtain its equivalent in the 2001 series. For instance, in September, an AICPIN of 118.1 in the 2016 series would be converted to 340.12 in the 2001 series.

The linking factor is also applied to convert the numbers from different periods to an equivalent in the 2001 series, in order to mitigate the impact of actual price rise. Previous changes in the base year witnessed higher linking factors, such as 4.93 for the period from 1960 to 1982 (a 22-year gap) and 4.63 for the period from 1982 to 2001 (a 19-year gap). However, the more recent change from 2001 to 2016, with a 16-year gap, resulted in a linking factor of only 2.88 (a 62% reduction compared to the previous difference in years).