So, a private sector employee in a bank or a service delivery platform will see her wages linked only to CPI-Urban in this festival season. Her counterpart in the government will get a far more generous compensation for inflation. Since the banks would also set their retail interest rates for their customers with an eye on CPI-Urban, the benefit for government employees will go up further. She will be compensated more in her wages and enjoy the benefit of lower retail prices and interest rates in her purchases. In fact the difference could be more stark because the RBI uses CPI (General), which in the current environment, further tapers down the inflation numbers. The CPI (General) was 3.21 per cent in August. Throughout this calendar year, CPI-IW has exceeded the CPI by an average of 300 basis points.
It is understood that the proposal for the latest revision in dearness allowance
lay pending in the finance ministry for close to two months because it was considered excessive. But the persistent slowdown in the economy helped it clear the Cabinet.
The difference has persisted as the 7th Pay Commission, which set the salary structure of the central government employees was lobbied by the employees' union to stick to the older CPI-IW. The benefits are now visible. The employees of state-owned banks also use the CPI-IW as the basis of their negotiations with the government and so do the permanent employees in manufacturing sector companies. But their ranks have thinned considerably as India Inc has shifted to hire contract employees. Even for the negotiations with bank employees the department of financial services has already indicated to the unions that it is only the CPI General which has to be used for setting new wages. Budget papers show the government expects to spend Rs 98,824.31 crore as allowances for its 5.5 million employees in 2019-20.