Local Levies, Supply Chain Distortion Trigger Widely Varying Inflation Levels 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 supply chain efficacy distort consumer prices.

The Consumer Price Index (CPI)-based inflation rate for the month of June was as high as 10.5 per cent in Telangana and as low as 4.7 per cent in Bihar, while the national average stood at 7 per cent.

The difference in inflation, according to experts, can be attributed to factors like transport costs, tax policies of state governments, and supply chain efficiency.

As per the latest CPI data, states, including Andhra Pradesh and Haryana, registered inflation of over 8 per cent. The other states which recorded inflation higher than the national average were Assam, Gujarat, Madhya Pradesh, Maharashtra, Odisha, Rajasthan, and West Bengal. The Union Territory of Jammu and Kashmir too had inflation of 7.2 per cent.

On the other hand, inflation was lower than the national average in Uttarakhand, Uttar Pradesh, Punjab, Karnataka, Jharkhand, and Chhattisgarh in June. Tamil Nadu, Delhi, Himachal Pradesh, and Kerala reported retail inflation of less than 6 per cent.

Rajinder Singh, General Secretary of All India Confederation of Goods Vehicle Owners' Association said that 40-60 per cent of the transportation cost is on account diesel which directly impacts the prices of consumer goods.

Singh said that for transporting perishables like vegetables, vehicle owners charge a to-and-fro fare. For long-distance transportation, only one-way rates are charged.

"Toll is another important factor in determining the transportation cost. More the number of toll plazas on a route, higher the cost of deliveries," Singh added.

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

S P Sharma, Chief Economist at industry body PHDCCI, said that inter-state variation in inflation is mostly a phenomenon of different economic dynamics and policy environment attributes of states.

Rural inflation varies more across states and it is also generally higher than its urban counterparts in almost all states.

"Some states are witnessing heightened price pressures on account of high petroleum products prices due to variation in the fuel duties across states. Variation in fuel duties among states leads to different degrees of impact of increase in fuel prices on overall states' inflation," he said.

The National Statistical Office (NSO), which releases the monthly CPI data, collects price information from selected 1,114 urban markets and 1,181 villages in the country through personal visits by field staff of the Field Operations Division on a weekly roster.

Binod Anand, Secretary General of Confederation of NGOs of Rural India (CNRI), who has been recently appointed as a Member of the MSP Committee, said the variation also depends upon the cost of living which can be attributed to a state government leadership and policies.

"Efficiency of PDS is also one of the likely reasons as the state provides a number of items through its PDS system. The revival of demand amidst the re-opening of the economy too varies from state to state. All these factors have a bearing in variations of inflation," he said.

It may be mentioned that the fuel group, which has a weightage of 6.84 per cent in the CPI basket, contributed 10 per cent to the headline inflation in June. Telangana and  Maharashtra had reported inflation of 20.96 per cent and 17.58 per cent, respectively, in June in this segment.

The cost of power is also high in states with higher inflation rates like Maharashtra, Andhra Pradesh and Telangana.

Sashi Sivramkrishna, Senior. Professor (Economics) at NMIMS, Bengaluru, said several factors are responsible for the differences in inflation rates among states. These include differences in food expenses that can be due to state-level policies like price change of food grain, pulses and edible oils as well as transport expenditure.

"Inflation is after all a consequence of friction that exists in the market and it is only obvious that there will be differences in inflation rates between states, which have some degree of autonomy in policy making," he added.

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