Excess rural inflation leading to steeper decline in potential growth of rural India: HSBC

By Saloni Shukla

Consumer price inflation in rural India is accelerating at a faster pace than in urban areas and its underlying trend is higher than RBI's upcoming target, HSBC said in its recent analysis on India's inflation divide.

While India's underlying inflation momentum at 5.5% is running below RBI's January inflation target of 6%, details show it to be higher at 6.5% for rural India while 4.5% for the urban segment.

In August, inflation measured by the Consumer Price Index ( CPI) in rural India was 5.05 per cent versus 4.47 per cent in August. In urban India, over the same period, consumer price inflation stood at 3.61 per cent versus 2.67 per cent.

HSBC points out that the dramatic fall of oil has pulled down both 'fuel' and 'transportation' prices. However, the pass-through has been lower for rural India. Further worrisome is the fact that, core inflation is running higher in rural India than in urban.

In its recent Inflation report HSBC has said, “Food inflation continues to remain an area of concern. While much of India's food is produced in rural India, rural Indians seem to be facing higher food price pressures, at least for some items.” Insufficient distribution channels may be coming in the way of reaching imported vegetables and oilseeds to rural areas, making these products more inflationary than they are at urban centers.

HSBC also states that the relative disadvantage of rural India is more prominent now, as urban India is benefiting from lower global prices while rural India, partly because of its structural ailments, is not being able to partake with equal vigor.