Higher inflation in Rural India and its implications

Last Updated18/04/2022

The retail inflation rate surged to 6.95% this March which is highest level in nearly one and a half years
Across large parts of the country, the experienced price rise has crossed 7.5% and even 8%.
Official data pegs rural inflation in March at 7.66%, with several States reporting even higher 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 exceptions being August when both stood at 5.3% and May when rural inflation was 6.6% and urban inflation was 5.9%
In March, the gap between the two has surpassed 1.5% with urban inflation at 6.12% and rural areas clocking 7.66%.

Food inflation: it was the key driver for the headline inflation rate jump in March, with the overall consumer food price index increasing to 7.68% from 5.85% in February
The spike was far more pronounced in rural India where food inflation hit 8.04%.
Other Factors: inflation in fuel and light and clothing were responsible for driving up rural prices
Persistently higher inflation in education costs of about 1 to 1.5 percentage points
Prices of traditional fuel like firewood have also risen
The shift of labour between urban and rural areas in the last two years has also injected volatility into demand dynamics.

Data from official surveys estimates that the bottom 20% of the population in urban as well as rural India is facing the worst effects.
The rural bottom 20% faced the highest inflation at 7.7% in March, while the upper 20% of the income segment in the hinterland experienced 7.6% inflation.

Inflation is becoming broad-based with upward pressure rising . Last year, low food inflation had contained the headline number, while fuel and core inflation (excluding food and energy prices) had risen. Now, food inflation is expected to rise along with both fuel and core inflation
The food price risks have risen due to the Russia-Ukraine conflict, higher prices for farm sector inputs could further feed into food inflation
With a normal monsoon anticipated this year, the inflation trajectory in months to come would determine if rural consumer demand rebounds or is constricted to focus on essential goods and services.

Prelims Takeaway

Mains Track

Q Discuss about the key drivers of higher inflation in rural areas and the way ahead for it.