Lack of reforms in the retail sector and limited development of a pan-Indian market has made it difficult for domestic consumers to enjoy lower inflation rates, shows the latest government data. An analysis of the monthly consumer price index (CPI) for industrial labour over the last 12 months shows that towns with the highest rates of inflation have mostly local factors to blame. ?The price asymmetry in the country is bound to happen until we develop an integrated market,? commented India?s chief statistician, Pronab Sen.
For instance, in December 2008, Nagpur in Maharashtra was one of the cities that recorded the highest rates of inflation. Yet, the rise in prices in Nagpur, data shows, was mainly due to increases in the cost of house rentals, rice, and sugar, as well as telephone charges. A comparison with Mumbai for the same month shows that prices of rice and sugar in large retail outlets in the metro were lower.
The disconnect is sharper in more interior towns like those in the Mariani-Jorhat belt in Assam, where wheat atta, goat meat, fish fresh, firewood, toilet soap and washing soap has grown costlier for industrial workers. Most of these items belong in the food & vegetable group, where local entrepreneurs across the country have strongly resisted the entry of organised retail.
That strong local factors are at work becomes clearer when the same data shows that in the same month, the prices of these items dropped in another part of the country, Madurai, where the prices of vegetables, groundnut oil, meat, poultry, onion and ginger fell. Similarly, in the Munger-Jamalpur sector, the decrease in CPI was thanks to prices of rice, vegetables and poultry.
Incidentally, data from the ministry of food processing shows that every year, India wastes around Rs 50,000 crore worth of foodstuff, mostly due to lack of adequate transport and storage. The CPI data set also shows that in each of the 12 months that FE tracked, the highest cost of living was reported from non-metro centres.
Sen says CPI-based inflation clearly shows the extent to which local prices impact the cost of living. That does not happen for the wholesale price index, as the overwhelming number of entries in the data set has a national market.
The pattern was repeated with unfailing regularity every month. In October, it was Tiruchirapally where prices of rice, goat meat and vegetables & fruits made it the town with the highest rate of inflation. The increase in the price of rice in all centres is interesting as the issue price of rice in shops is government controlled. But whereas the price control is reflected in the competitive pricing of rice in the retail outlets of large chains, that benefit is not available in smaller towns.
According to Ramesh Chand, national professor at NCAP, localised factors like short supply or temporary supply disruptions are better reflected in CPI numbers. ?It is known that when WPI rises, CPI rises faster. But when it falls, CPI does not exactly follow the same pattern and not in the same measure,? he said.
No wonder that from December 2008 to January 2009, CPI has remained in the 9.85%-11.62% range, while WPI as measured by its year-on-year variation has dropped by almost three-fourths from a high of 12.91% in August 2, 2008 to 2.43%, the lowest in over six years.