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Inflation rates higher in most poll-bound states: RBI data

🔴 Four states — Punjab, Goa, Uttarakhand and Manipur — showed higher inflation rates than the national average for at least three of the last five years.

Written by Aanchal Magazine , Sunny Verma | New Delhi |
Updated: January 17, 2022 3:51:53 pm
Reserve Bank of India, Uttar Pradesh Assembly elections 2022, Punjab Assembly elections 2022, Goa, Uttarakhand and Manipur, total expenditure, Indian Express, India news, current affairs, Indian Express News Service, Express News Service, Express News, Indian Express India NewsIn terms of state expenditure on education as a ratio to total expenditure, Uttar Pradesh recorded the sharpest fall, from 16.7 per cent in 2016-17 to 12.5 per cent in 2021-22. The national average was 13.9 per cent in 2021-22 (Budget Estimates). (File)

Reflecting the development priorities of the five poll-bound states, an analysis of data from the Reserve Bank of India’s report on state finances shows that the two big states, Uttar Pradesh and Punjab, fell below the national average in terms of spending on education.

In fact, Punjab’s expenditure on health and development were also below average. Four states — Punjab, Goa, Uttarakhand and Manipur — showed higher inflation rates than the national average for at least three of the last five years.

In terms of state expenditure on education as a ratio to total expenditure, Uttar Pradesh recorded the sharpest fall, from 16.7 per cent in 2016-17 to 12.5 per cent in 2021-22. The national average was 13.9 per cent in 2021-22 (Budget Estimates).

Despite seeing an improvement during this period, from 8.6 per cent in 2016-17 to 10 per cent in 2021-22, Punjab remained below the national average. Only Uttarakhand, at 17.3 per cent, spent more than the national average. Manipur spent 10.7 per cent, and Goa 13.1 per cent.

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As for state expenditure on health as a ratio to total expenditure, Punjab (3.4 per cent) and Manipur’s (4.2 per cent) spending levels were below the national average of 5.5 per cent.

Goa’s health to total expenditure ratio was 6.8 per cent, Uttarakhand 6.1 per cent, and Uttar Pradesh 5.9 per cent.

Between 2016-17 and 2021-22, barring Manipur, spending on health improved for all states, in line with the national average moving up from 4.6 per cent to 5.5 per cent during the same period.

In terms of overall spending on development activity, Punjab and Uttarakhand were below the national average. This is measured as development to GSDP (Gross State Domestic Product) ratio, which basically reflects development expenditure as a proportion of the total economic output in a state.

While the national average was 13.1 per cent in 2021-22, development expenditure to GSDP ratio for Punjab was the lowest at 11.5 per cent while that for Uttarakhand was 11.7 per cent. Manipur reported the highest (43.7 per cent), while UP and Goa were at 17.1 per cent and 17.9 per cent respectively, in 2021-22.

Between 2016-17 and 2021-22, Manipur recorded a rise in the ratio from 28.2 per cent to 43.7 per cent. For Punjab, it rose from 7.6 per cent to 11.5 per cent, while UP remained constant at 17.1 per cent. Goa recorded the sharpest fall from 21.3 per cent to 17.9 per cent, while Uttarakhand posted a marginal decline from 12.5 per cent to 11.7 per cent.

“The development needs of each state are different depending on the initial conditions. A state with better health and education outcomes may need lesser expenditure compared to a state with a lower health and education outcome. Fiscal growth and fiscal position of a state have a larger bearing on developmental expenditure. Uttar Pradesh has been maintaining a revenue surplus from the last one-and-a-half decade, whereas Punjab has generally remained a revenue deficit state. As a result, UP has been able to spend more on development expenditure compared to Punjab,” Devendra Kumar Pant, Chief Economist, India Ratings, said.

Some of the states also reported higher inflation rates than the national average. For instance, Uttarakhand reported a higher inflation rate for four years (2017-18 to 2020-21). In 2020-21, the annual CPI inflation rate for Uttarakhand was 8.1 per cent as against the all-India level of 6.2 per cent; in 2019-20, it was 5.9 per cent as against the national average of 4.8 per cent.

In Punjab, the inflation rate remained above the national average for three of the last five years: 5 per cent as against 4.8 per cent national average in 2019-20; 3.8 per cent as against 3.4 per cent national average in 2018-19; and 3.7 per cent as against 3.6 per cent national average in 2017-18.

Manipur reported higher inflation rates for all the five years: 10.1 per cent in 2016-17, 12.4 per cent in 2017-18, 8.7 per cent in 2018-19, 6.9 per cent in 2019-20, 6.7 per cent in 2020-21.

Experts said there could be both demand-side and supply-side factors contributing to the rise in inflation rates in these states. Also, the states where healthcare facilities are lagging could be seeing a higher increase in inflation rates, as healthcare and fuel components have contributed majorly in the overall rise in inflation rate over the last one year.

Historically, incumbent state governments have faced the heat of inflation in Assembly elections. However, the TMC government came back to power in West Bengal last year, despite the state’s inflation rate of 8.7 per cent being higher than the national average of 6.2 per cent in 2020-21.

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