CPI for Agricultural Labourers

Also called: CPI-AL · Topic: Inflation and Index Numbers: CPI, WPI, IIP and the Deflator · NCERT: Class 11, Ch 7 "Index Numbers"

Meaning

The Consumer Price Index for Agricultural Labourers (CPI-AL) measures how the retail prices of the goods and services that farm labour families usually buy change over time. The Labour Bureau compiles it every month. Its current base is 2019=100, which took effect from the June 2025 index [6].

• Why it matters: farm labourers spend most of their income on food, so price rises hurt them first and hardest. CPI-AL shows how much their cost of living has gone up. Governments use it mainly to revise minimum wages in agriculture.

• Formula (family budget method, NCERT Class 11): CPI = ΣWR ÷ ΣW, where R (price relative) = (p₁ ÷ p₀) × 100 and W = the item's weight, meaning its share of the family budget.

• Inflation from CPI-AL is the year-on-year % change: (Iₜ − Iₜ₋₁₂) ÷ Iₜ₋₁₂ × 100. Here Iₜ is this month's index and Iₜ₋₁₂ is the index for the same month last year.

Explanation

How it is built

• Reference group: households of agricultural labourers in rural India, meaning people who work for wages on other people's farms.
• Basket of commodities: a fixed set of goods and services that these families usually buy.

• Weights come from household consumption expenditure surveys. An item that takes a bigger share of the family budget counts for more.

• Retail prices: the prices the labourer actually pays in the village market. These are not wholesale (bulk trade) prices.

• Base year: the year when the index = 100. Every later month is compared with it.
• Old base: 1986-87=100 (the base NCERT uses).

• New base: 2019=100, from the June 2025 index [6].

• The basket quantities stay fixed at the base-period level. So it is a Laspeyres-type index, meaning an index that uses base-year quantities as weights.

How to read a CPI-AL number

• NCERT gives CPI-AL (1986-87=100) as 872 in May 2017.
• A labour family that spent ₹100 on its basket in 1986-87 needed ₹872 for the same basket in May 2017.

• So the prices of that basket rose by 772% over those 30 years.

• The index checks whether the family can still buy the same basket. It does not track what the family actually bought. It measures purchasing power.

Worked example: why food dominates the index

This is based on NCERT Class 11, Index Numbers, Q18.

• Given: CPI = 125, food index = 120, index of all other items = 135. Let food's weight = w.
• 120w + 135(1 − w) = 125
• 135 − 15w = 125 → w = 2/3
• So food carries about 66.7% of the weight.
• Lesson: in a poor worker's basket, food has the biggest weight. When food prices rise, the index rises sharply, and so should the wage linked to it.

What makes CPI-AL rise or fall

• Food prices: poor rains, crop failure or supply shocks (onion, pulses, cereals) push the index up quickly.
• Fuel and light: kerosene, firewood and electricity costs.
• Clothing and other rural services: these count for less, but they still matter.
• Base revision: a new base brings in new weights. When a newer consumption pattern gives food a smaller share, the same food price shock moves the index less.

In India

• Compiler: the Labour Bureau (Ministry of Labour and Employment). It also compiles CPI-IW and CPI-RL.
• Base history:
• NCERT: 1986-87=100. The May 2017 value was 872.

• Current: 2019=100, in effect from the June 2025 index [6].

• Main use: revising minimum wages in agriculture. CPI-RL is used for rural minimum wages in general.

• Its partner index, CPI-RL: it covers all rural labourers, both farm and non-farm. CPI-AL covers only farm labourers. Both moved to the 2019 base together [6].
• How it fits the CPI family:
• CPI-IW → Dearness Allowance (DA), an extra payment that makes up for rising prices, for government employees [5].
• CPI-AL/RL → rural and farm wages.

• CPI-Combined (NSO, MoSPI) → headline inflation and the RBI's 4% ± 2% target [7].

• Why a separate index: a farm labourer's basket is mostly food. A city official's basket includes cars, air travel and education. One common index would misstate the cost of living for both groups.

Don't confuse with

• CPI-RL (Rural Labourers): CPI-AL covers only agricultural labourers. CPI-RL covers both farm and non-farm labourers in rural areas. The compiler (Labour Bureau) and the new base (2019=100) are the same for both [6].
• CPI-Rural (NSO, MoSPI): it covers all rural households, not just labourers. Its compiler is the NSO, not the Labour Bureau, and its new base is 2024=100 [3].
• CPI-IW (Industrial Workers): also from the Labour Bureau, but it tracks industrial workers and is used for DA. Its base is 2016=100, released in 2020 [4].
• WPI (Wholesale Price Index): it uses wholesale (bulk trade) prices and leaves out services. CPI-AL uses retail prices paid by labour households.

Prelims Hooks

• CPI-AL, CPI-RL and CPI-IW → Labour Bureau. CPI-Rural, CPI-Urban, CPI-Combined and CFPI → NSO (MoSPI). Questions often swap the compilers.
• CPI-AL base: 1986-87=100 (NCERT) → 2019=100, in effect from the June 2025 index [6].
• Main use of CPI-AL: revising minimum wages in agriculture. It is not used for DA (that is CPI-IW) and not used as the RBI's inflation target (that is CPI-Combined).
• CPI-AL is narrower than CPI-RL. CPI-RL includes non-farm rural labourers too.
• Family budget method: CPI = ΣWR ÷ ΣW. It is a weighted average of price relatives, a Laspeyres-type index.
• Trap: "CPI-AL (1986-87=100) = 872" means the basket's cost rose about 8.7 times. It does not mean that inflation was 872%.

Mains Points

• Old base years hurt wage fairness:
• The 1986-87 basket reflected spending patterns from more than three decades before the revision.
• Wages linked to an outdated basket may not match what labour families actually pay for today, such as mobile phones, transport and health.

• Rebasing to 2019=100 [6] brings the weights closer to present-day rural spending, so minimum wage revisions become more accurate.

• One CPI or many? (GS-III):

• Group-specific indices make wage indexation (automatically adjusting wages to price rises) fairer: CPI-AL/RL for rural wages, CPI-IW for DA.
• But the indices have different compilers and base years (2019 for CPI-AL, 2016 for CPI-IW, 2024 for CPI-C), which makes them hard to compare.

• The reform direction is regular 3–5 year rebasing tied to fresh household surveys, as MoSPI plans for its own CPI [2], and bringing the Labour Bureau indices in line with it.

• Measuring welfare correctly (GS-II):

• Agricultural labourers depend heavily on food, so food inflation cuts their real wages (wages adjusted for prices) first.
• In MoSPI's CPI 2024 series, free ration grain is excluded, because the CPI counts only what households pay for [2].
• So price indices show market prices, not the value of support households receive in kind. Keep this in mind when you use CPI data to judge poverty, real wages or how well PDS works.

Related concepts

• Consumer Price Index
• Basket of commodities
• Retail prices
• CPI for Industrial Workers
• CPI for Rural Labourers
• CPI for urban non-manual employees
• CPI-Rural and CPI-Urban
• CPI-Combined
• Consumer Food Price Index

Read more

• The consumer price index family in India