Preferences,Spatial Prices and Inequality

This study examines the effect of prices on inequality in rural India during the period of economic reforms and beyond (1999/2000–2009/2010). It proposes a framework for calculating ‘exact’ price indices, based on the ‘Exact Affine Stone Index’ (EASI) demand system, and shows its usefulness by calculating spatial prices and regionally varying temporal prices that allow for both differences in preferences between states and over time. The study finds that the nature of inflation has been regressive during (1999/2000–2004/2005) and progressive during (2004/2005–2009/2010) and that the effects of temporal price inflation and spatial prices on inequality are qualitatively different.