CSES in Media

Agriculture crisis led to lower inflation in producing state

The Times of India: 23.01.2019

Crisis in the farm sector of major food-producing states in the country was the major reason for the decline in inflation in those states, said rating agency CRISIL.

In the report, ‘States of growth 2.0: The scorecard, and the workout on how each state got to where it has’, the agency said that in FY 2018, Kerala recorded the highest inflation among states, hurt by rigidity in food and beverages and urban housing prices.

“As for inflation, it fell across all states in fiscal 2018, compared with five years ago. However, significant inter-state differences persist with the highest consumer inflation in Kerala at 6% and the lowest in Odisha at 2.2%,” the CRISIL report said.

Apart from Kerala and Tamil Nadu, the inflation was below 4.5% in all other states in the country.

Commenting on the study, Krishnakumar K K, senior fellow, Centre for Socio-economic and Environmental Studies (CSES), said that it was the agrarian crisis that had brought down inflation and even caused deflation in the rest of the country. “The deflation in the agriculture sector has pulled the inflation rate down right from north Indian states till up to Tamil Nadu. If you review the last five years, you could see that it was farmers who had suffered the most as prices of their products experienced severe fluctuations while heading to a crash,” he said.

At the height of the crisis, the farmers in Maharashtra were forced to sell onion for as cheap as 25 paisa per kg a couple of months ago. “They were happy even when they had to sell the produce for Rs 2-3 per kg,” Krishnakumar said.

On the other hand, prices rarely experienced a significant decline in Kerala which is a consumer state. “Onion prices rarely went below Rs 20 per kg in Kerala. In addition, the increase in transportation costs and the profit-making middlemen hindered the drop in inflation rates,” he noted. Even though Kerala had recorded the highest rate, the 6% rate is quite normal, he added.