70 SOCIAL SCIENTIST wages and salary earners in India deserve dearness allowance for every ri^e 111 cost of living, as reflected in the estimated consumer price index numbers. In most of the Western capitalist countries the authors find that the rise in cost of living is not fully compensated in wages as in India. For example, in the USA a portion of the legally settled dearness allowance is withheld by the employers for the provisioii of fiiture fringe benefits to the workers. In some of the European countries like Denmark the price rise caused by indirect taxation is not compensated through an increase in clearness allowance to the workers. The authors argue that, since indirect taxes imposed by government are expected to be borne by everyone in the economy, we should think of, as in Denmark, leaving the price rise arising from indirect taxes out of the purview of dearness allowance payments. They do not say what is the popo'tion of indirect taxes in the total tax revenue and the extent of price rise caused by indirect taxes in Denmark. In India, however, it is well-known that the direct tax base is being gradually reduced over the years,—more than 80 per cent of the total tax revenue is collected through indirect taxes2 imposed mostly on essential consumption goods. These taxes are immediately reflected in market prices. If the workers are not to be given compensation when their costs of living go up, the very basis of dearness allowance payments becomes meaningless. The Price Index An objection that is raised against the existing system of dearness allowance payment is that the consumer price index used for determining the rates of dearness allowances is 'upward biased', as it is estimated by using the weighted arithmetic mean instead of weighted geometric mean. It is argued that, owing to the upward bias in the index, dearness allowance forms a very significant proportion of the total emoluments and, for certain categories of employees, it is even more than the basic wages ; there are also instances of dearness allowance moving faster than the actual rise in the cost of living. That is why, according to the authors, in the private corporate sector the cost of labour and, therefore, the cost of production have gone up ; in government, non-development expenditures do not come down to reasonable limits ; in public sector undertakings, losses are mounting. It is true that the arithmetic mean has an upward bias, as compared with a downward bias for geometric mean.3 To say that because of this or any other statistical estimation procedure the consumer price indices are upward biased, we should be ignorant of many other factors which are more important in determining the trend of the indices. On the other hand,these indices are widely criticised for suppression of inflation on several counts, namely, (i) the prices utilised for its compilation are not the actual retail prices paid by the consumers but the prices quoted in the wholesale market; (ii) fixed- rates of controlled commodities notified by