Inflation higher in rural India

The country's hinterland has borne the brunt of inflation over the last two fiscal years notwithstanding the Modi government's thrust on rural economy.

A study done by CRISIL research reveals that while urban inflation fell from 9 per cent to 5.3 per cent over the last two fiscal years, rural inflation also declined from 10.1 per cent to 6.2 per cent but remained higher than urban areas. The gap--at nearly 100 basis points-- has more or less remained the same.  

In fiscal 2016, core rural inflation was 6.7 per cent compared with 4.8 per cent in urban centres. Sub-categories such as health, education, household goods and services and recreation and amusement have all recorded higher inflation in rural India last fiscal.

The study that analyses data for the last five years clearly shows people in rural areas, that make up 69 per cent of India's population, have borne the brunt of inflation compared with their urban counterparts.

In the context of Modi government's various initiatives to double farm income by 2022 and replace subsidised gas connections in urban centres by partially funded connections in rural parts of the country have not had the desired impact yet. Fuel inflation in rural India for example, was 6.8 per cent compared with 2.7 per cent in urban largely due to surging prices of cooking fuel such as dung cake and firewood and chips.

Inflation in firewood and chips -- used by 84 per cent of the rural population compared with 23 per cent of urban -- was 7.4 per cent, while that in dung cake -- used by close to 41 per cent of rural households compared with just 7 per cent in urban centers -- was 10.8 per cent last fiscal.

At the same time, the meltdown in transport fuel prices -- petrol prices fell 7.6 per cent last fiscal, and diesel prices 11.7 per cent -- hasn't benefited rural areas as much as urban.

"Around 37 per cent of urban households use petrol, and 2 per cent use diesel for their vehicles- compared with less than half that - 17 per cent petrol, and 0.8 per cent diesel -- in rural households, according to data for fiscal 2012 (latest available)," the report says. "Petrol and diesel account for 3.5 per cent of monthly consumption expenditure in urban areas, and less than half that at 1.7 per cent in rural."

"Lack of recreation options and supporting infrastructure such as constant electricity also stoke inflation in rural areas. And the absence of ample institutional medical services has had a bearing on healthcare costs. Overall non-institutional medical inflation rose by 9.7 per cent last fiscal," says D K Joshi, Chief Economist at Crisil. "To sustainably lower inflation and bridge the gap between urban and rural prices, government needs to improve road connectivity and healthcare infrastructure in rural areas, and relentlessly implement the Pradhan Mantri Ujjwala Yojana, which aims to provide cooking gas connectivity to 5 crore below-poverty line beneficiaries over the next three years."

The steep fall in commodity prices over the last 12 months or so has also not filtered through to the rural areas that well thanks to poor storage and transport facilities. This in turn, has fed into food and non-food inflation.

The momentum achieved in construction of roads and highways as pointed out in this report, is yet to show results in rural India.