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Lower inflation has reinforced favourable redistribution of income from top to bottom and middle-income groups: Finance ministry

The finance ministry classifies the Indian consumer into three broad classes: the top 20 percent, the middle 60 percent, and the bottom 20 percent.

May 15, 2022 / 09:30 PM IST
The Finance Ministry (Image: PTI)

The Finance Ministry (Image: PTI)

An hour before the latest data showed retail inflation in April surged to the highest since the Bharatiya Janata Party-led government first took charge in late May 2014, the finance ministry looked to ease concerns that the poorer sections of society were being hit the worst by elevated inflation.

Writing in the monthly economic review report for April, the ministry's officials said the poor were hurt less by higher prices in FY22 as compared to the rich.

"Evidence on consumption patterns further suggests that inflation in India has a lesser impact on low-income strata than on high-income groups," the finance ministry said in the report, released on May 12.

The ministry's findings are seemingly at odds with comments made last week by Reserve Bank of India Governor Shaktikanta Das.

In his statement announcing the surprise 40-basis-point repo rate hike on May 4, Das had said sustained high inflation has "pronounced adverse effects on the poorer segments of the population by eroding their purchasing power".

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In its review report, the finance ministry used data from the 2011-12 National Sample Survey on Household Consumer Expenditure to arrive at its conclusions. It classified the Indian consumer into three broad classes: the top 20 percent, the middle 60 percent, and the bottom 20 percent. Further, their expenditure was also categorised into three classes: food and beverages, fuel and light (including transportation), and items excluding food and fuel.

Combining the expenditure classes with their respective inflation numbers for the last two years, the finance ministry was able to compute the 'effective headline inflation' for the three expenditure classes in urban and rural Indians. The results are as follows:

i) Inflation for the bottom 20 percent of rural consumers decreased to 5.2 percent in FY22 from 6.0 percent in FY21. For their urban counterparts, inflation fell to 5.7 percent from 6.8 percent

ii) Inflation for the middle 60 percent of rural consumers decreased to 5.3 percent in FY22 from 5.9 percent in FY21. For their urban counterparts, inflation fell to 5.7 percent from 6.8 percent

iii) Inflation for the top 20 percent of rural consumers increased to 5.6 percent in FY22 from 5.5 percent in FY21. For their urban counterparts, inflation fell to 5.7 percent from 6.5 percent

"Therefore, it can be inferred from the above analysis that lower inflation has reinforced the favorable redistribution of the income from top to bottom and middle-income group," the finance ministry said.

Meanwhile, data released just an hour later on May 12 by the Ministry of Statistics and Programme Implementation showed Consumer Price Index (CPI) inflation surged to 7.79 percent in April. Interestingly, the data showed rural inflation in April was 8.38 percent - the highest in exactly eight years.

Urban inflation in April was 7.09 percent, the highest in 18 months.



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Siddharth Upasani
first published: May 12, 2022 07:45 pm
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