GS Paper 3: Indian Economy and issues relating to planning, mobilization of resources, growth, development and employment.
News: Despite picking up of private consumption, there is dampener in the form of inflation. National Retail inflation after an eight-year high of 7.79% in April, cooled slightly to 6.7% by July. However, in several States and Union Territories (UTs), including Assam, Andhra Pradesh, Gujarat, Haryana and Telangana, consumers continued to face over 7% inflation in July, while 11 States, including West Bengal, Uttar Pradesh and Bihar, saw accelerated price rise in the month.
Which States are seeing the highest inflation and where are consumers better off?
- Consumer Price Index (CPI) crossed the central bank’s upper tolerance limit of 6% in January and has averaged 6.8% till July 2022.
- 14 States as well as three UTs, including Jammu and Kashmir, have faced higher than the national inflation, averaging over 7% in the same period.
- Consumers in Telangana (8.32%), West Bengal (8.06%) and Sikkim are worst-hit with 8%-plus inflation, other major States are not too far behind, with some of them posting a spike in price rise in July.
- Major states are also facing spike in price rise in july: Average 2022 retail inflation so far in Maharashtra and Haryana has been 7.7%, followed by Madhya Pradesh (7.52%), Assam (7.37%), Uttar Pradesh (7.27%), Gujarat and J&K both of which have averaged 7.2% and Rajasthan (7.1%).
- Through out 2022 dozen States have recorded retail price rise of less than 6% including Kerala (4.8%), Tamil Nadu (5.01%), Punjab (5.35%), Delhi (5.56%) and Karnataka (5.84%).
- Average inflation in Manipur, Goa and Meghalaya is below 4%, at 1.07%, 3.66% and 3.84%, respectively.
- Inflation of Andhra Pradesh and Jharkhand’s averaged just 0.1% over the national rate at 6.9%.
What explains the variations in price rise among the States?
- Drop in Food price inflation to a five-month low of 6.8% in July is a key differentiating factor for States’ inflation.
- Non -Major crop producing states have higher inflation compared to major crop producers as transport costs are added on, and those with predominantly rural areas also clock more inflation as the CPI for rural areas assigns a higher weightage to food.
- Higher average rural inflation compared to urban inflation at 7.07% from January to July, and 7.6% in the four months since it peaked at 8.38% in April.
- Consumption patterns and divergences in different items’ price trends also influence variations among States.
- Since some States lowered their fuel taxes made a difference in inflation: As Inflation in petrol used for conveyance eased to a 32-month low of 0.3%, diesel turned negative for the first time since November 2019 at (-)2.4%.
- Improvement in private consumption with urban demand getting support from contact-intensive services.
Why does divergence in inflation across States matter?
- Diminishing spending propensity due to persistently high inflation particularly in rural India that is facing more price pressures even after the spike in share of private consumption to nearly 60% of GDP in Q1 2022-23.
- High inflation and subdued rural demand may dent private consumption leading to negative real rural wage growth as
- Uneven progress of monsoon and inflationary pressures is cramping household budgets leading to anxiety about rural demand.
Conclusion: Policy makers by Identifying what is driving inflation higher in some States vis-à-vis others will provide lasting relief to consumers, will decide interest rate hikes and curb trade to cool prices of individual items. To address the price trigger Centre and States can co-ordinate to pinpoint the local factor.
Source:- The Hindu
- The Hindu:-https://bit.ly/3d4rNPt; Author Name:-Vikas Dhoot