Inflation decline sharper in high-income states compared to low-income states, says SBI report

The State Bank of India's report highlights that middle and high-income states have experienced a steeper decline in food inflation compared to low-income states, attributed to labour migration and faster disinflation in wealthier regions.

A recent report by the State Bank of India (SBI) has revealed that middle and high-income states in India have seen a more significant decline in food inflation over the last decade compared to their low-income counterparts. The report highlights the stark differences in food inflation trends between wealthier and poorer states, with a noticeable downward shift in food inflation in higher-income regions.

According to the SBI report, the middle and high-income states have experienced a more pronounced drop in food inflation, which reflects a broader trend of faster disinflation in these areas. Conversely, low-income states have seen a much slower decline in food inflation. The report attributes this disparity to the migration of labour from low-income states to more prosperous regions in search of better employment opportunities.

This migration is helping to accelerate disinflation in high-income states, as the inflow of workers, coupled with better job opportunities, likely contributes to the reduced pressure on food prices in these regions. However, the reduction in food inflation in low-income states is moving at a more gradual pace, which could be due to various factors, including slower economic development and fewer job opportunities.

In addition, the SBI report points out that retail inflation across states is gradually aligning with the Reserve Bank of India’s target of 4 per cent. Using a Sigma-type methodology, the report concludes that the disparity in inflation rates among states has been narrowing over the past decade, though the convergence in food inflation is occurring at a faster rate than in general inflation.

A key aspect of the report is the shift in the share of Gross Fixed Capital Formation (GFCF) among Indian states. The share of GFCF in low-income states has risen by 6.44 per cent between FY15 and FY23. In contrast, the share in middle-income states has remained stagnant at around 5 per cent. High-income states have seen a sharp increase in their GFCF share, which has surged from 4.17 per cent in FY15 to nearly 30 per cent in FY23.

While the growing share of GFCF in high-income states is indicative of their increasing economic activity, the report also warns that this could exacerbate inflationary pressures in these regions. The rising disparity in economic growth and migration trends calls for balanced regional development and targeted interventions to prevent widening economic inequalities.

(With inputs from ANI) 

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