Local levies and supply chain distortion trigger widely varying levels of inflation across states

Even after five years of a common Goods and Services Tax (GST), retail inflation in India varies widely across states, as differences in local levies and the efficiency of supply chain distort consumer prices.

The inflation rate based on the consumer price index (CPI) for the month of June was as high as 10.5% in Telangana and as low as 4.7% in Bihar, while the average national was 7%.

According to experts, the difference in inflation can be attributed to factors such as transportation costs, state government tax policies and supply chain efficiency.

According to the latest CPI data, states including Andhra Pradesh and Haryana recorded inflation of over 8%. Other states that recorded inflation above the national average include Assam, Gujarat, Madhya Pradesh, Maharashtra, Odisha, Rajasthan and West Bengal. The Union Territory of Jammu and Kashmir also recorded inflation of 7.2%.

By contrast, inflation was below the national average in Uttarakhand, Uttar Pradesh, Punjab, Karnataka, Jharkhand and Chhattisgarh in June. Tamil Nadu, Delhi, Himachal Pradesh and Kerala reported retail sales inflation below 6%.

Rajinder Singh, secretary general of the Goods Vehicle Owners Association of India, said 40-60% of transport costs are due to diesel, which has a direct impact on the prices of consumer goods.

Singh said that for transporting perishables like vegetables, vehicle owners charge for a round trip. For long-distance transportation, only one-way fares are charged.

“The toll is another important factor in determining the cost of transportation. The more toll booths on a route, the higher the cost of deliveries,” Singh added.

Diesel costs more in states like Andhra Pradesh, Telangana, Rajasthan, Madhya Pradesh and Maharashtra due to higher incidence of local taxes.

SP Sharma, chief economist at industry body PHDCCI, said variation in inflation across states is primarily a phenomenon of different economic dynamics and attributes of the political environment of states.

Rural inflation varies more from state to state and is also generally higher than its urban counterparts in almost every state.

“Some states are experiencing increased pricing pressures from high petroleum product prices due to the variation in fuel taxes between states. The variation in fuel taxes between states results in different degrees of impact from the ‘rise in fuel prices on overall state inflation,’ he said.

The Office for National Statistics (ONS), which publishes the monthly CPI data, collects price information from 1,114 selected urban markets and 1,181 villages nationwide through personal visits by field staff of the Field Operations Division on a weekly list.

Binod Anand, secretary general of the NGO Confederation of Rural India (NCRI), who was recently appointed as a member of the MSP committee, said the variation also depends on the cost of living which can be attributed to management and staff. state government policies. .

“The efficiency of the PDS is also one of the likely reasons, as the state provides a number of items through its PDS system. The revival of demand amid the reopening of the economy also varies from state to state. All of these factors affect changes in inflation,” he said.

We can mention that the fuel group, which has a weighting of 6.84% in the CPI basket, contributed 10% to overall inflation in June. Telangana and Maharashtra had recorded inflation of 20.96% and 17.58%, respectively, in June in this segment.

The cost of electricity is also high in states with higher inflation rates, such as Maharashtra, Andhra Pradesh and Telangana.

Sashi Sivramkrishna, Senior. The Professor (Economics) at NMIMS, Bengaluru said that several factors are responsible for the differences in inflation rates between states. These include differences in food expenditures that may be due to state-level policies such as changing the prices of food grains, pulses, and edible oils as well as transportation expenditures.

“Inflation is after all a consequence of the frictions that exist in the market and it is obvious that there will be differences in the rate of inflation between the States, which have a certain degree of autonomy in the elaboration policies,” he added.

The GST, which was introduced five years ago, merged 17 different central and state levies to impose a single, uniform rate of indirect tax on goods and services.

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