Rural Inflation

August 16, 2022
Posted by: OptimizeIAS Team
Category: DPN Topics

Rural Inflation

Subject : Economy

Section: Inflation

Context: Amidst headline retail inflation coming down to a 5month low in July, 11 States, including Maharashtra and Gujarat, have recorded higher than the national average.

Details:

All India CPI recorded 6.71 per cent in July, which is the lowest in five months.
11 States have recorded higher than the national average ranging between 8.58 to 6.89 per cent in July.
- States –Telangana, Andhra Pradesh, Assam, Gujarat, Haryana, Jammu & Kashmir, Madhya Pradesh, Maharashtra, Uttar Pradesh, West Bengal and Rajasthan
Rural inflation continues to be higher than urban in many of the 22 States and Union Territories.

Why is rural inflation greater than urban inflation?

Urban inflation has usually tended to be higher than rural inflation by an average of about 0.8 percentage points through most of 2021 — the only exception being August.

Causes of divergence :

Different basket of products:
- Higher inflation in food, which has a higher weight in the Consumer Price Index, along with inflation in fuel and light and clothing, were the key factors driving up rural prices.
- For example, food has a weight of 54.18% in the CPI rural index and only 36.29% in the urban index. Also, the urban index takes into consideration housing prices that are not a part of the rural index. These variations affect the final numbers drastically.
Fuel prices:
- fuel prices are higher in rural areas due to connectivity issues, while prices of traditional fuel like firewood have also risen
- The Urban index concentrates on the more widely used LPG and diesel. The prices for these have fallen because of low global prices.
Differences in food:
- Ironically, food products are somewhat costlier in rural India than in urban India.
- One reason is the drought-like conditions, which could have driven up prices..
Higher pent up demand
- The pent-up demand is higher in rural India mainly due to labour migration to rural areas, so clothing and many other items are seeing higher inflation as demand picks up.
A persistently higher inflation in education costs and other services.
Structural problems:
- Rural India suffers from poor infrastructure. This leads to bottlenecks in responding to supply shortage in food items.
- Inadequate distribution channels hinder bringing imported vegetables and oilseeds to rural areas, many experts say.
- RBI is unable to do much when it comes to supply related bottlenecks.

Concept:

Types of Consumer Price Index:

CPI for Industrial Workers (CPI-IW)
- It attempts to quantify changes in the pricing of a fixed basket of products and services used by Industrial Workers over time.
- A typical working-class family from any of these seven economic sectors, ranging from industries, mines, plantations, motor transport, port, railways, and energy generation and distribution, would be the target demographic.
- The Labour Bureau compiled this list. This functions under the Ministry of Labour and Employment.
CPI for Agricultural Laborers (CPI-AL)
- The Labor Bureau compiles this data to help revise minimum wages for agricultural labor in different States.
CPI for Rural Labourer (CPI-RL)
- The Labour Bureau compiled this list. This functions under the Ministry of Labour and Employment.
CPI ( Urban Non-Manual Employees) (CPI-UNME)
- This information is compiled by the Central Statistics Office (CSO), which is now known as the National Statistical Office (NSO).
- The Ministry of Statistics and Program Implementation oversees the NSO.
With effect from January 2011, the Central Statistics Office (CSO), Ministry of Statistics, and Programme Implementation began issuing Consumer Price Indices (CPI) on a monthly basis for all of India and States/UTs, separately for rural, urban and combined.
- In January 2011, the CPI (R), CPI (U), and CPI (C) with Base Year 2010 were issued.
- The following are the primary components of CPI (C): (along with their weights)
  - Food and Beverage – 45.86;
  - Food and Beverage – 45.86;
  - Housing – 10.07;
  - Fuel and Light – 6.84;
  - Clothing and Footwear – 6.53;
  - Pan, tobacco, and intoxicants – 2.38;
  - Miscellaneous – 28.32;