Determinants of Price Deviations Across Regions in India

Kaushik Bhattacharya ()
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Kaushik Bhattacharya: Associate Professor, Indian Institute of Management Lucknow

Chapter 11 in Market, Regulations and Finance, 2014, pp 195-211 from Springer

Abstract: Abstract This chapter examines the nature and the extent of price deviation across regions for select tradable commodities in India. For commodities like rice, sugar, washing soap and kerosene, results indicate substantial deviations in prices across regions. It is observed that cross-sectional deviations in prices of these commodities, measured in terms of statistics like relative mean deviation or coefficient of variation, are highly persistent over time. Results reveal that transportation cost and common fiscal policy for regions within a particular state boundary could explain only a small part of the variations in regional price deviations and its persistence. These results highlight the importance of local factors (e.g. local taxes like municipal taxes or octroi, existence of entry barriers due to local monopolies, local supply shocks etc.) in price formation in India. The importance of local factors on regional prices reinforces the structuralist logic of curbing inflation rates through appropriate fiscal and administrative policies rather than by a centralized monetary policy.

Keywords: Price deviation; Price convergence; Tradable commodities; Transformation cost; Persistence (search for similar items in EconPapers)
Date: 2014
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Persistent link: https://EconPapers.repec.org/RePEc:spr:isbchp:978-81-322-1795-4_11

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DOI: 10.1007/978-81-322-1795-4_11

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