Inflation in India

Inflation in India

Inflation Trends in India

The average headline Consumer Price Index-Combined (CPI-C) inflation in India moderated to 5.2% in 2021-22 (April-December) from 6.6% in the corresponding period of 2020-21 and was recorded at 5.6% in December 2021.

[Source: ES 2021-22]

Inflation (Average in %)

[Source: ES 2022-23]

Retail Inflation

• Retail inflation has extended its stay inside the RBI's tolerance range of 2 to 6% for a sixth consecutive month. Headline inflation was largely unchanged at 5.1% in February 2024.

• Overall, in FY24 (April-February), inflation averaged 5.4%, lower than the 6.8% recorded in the corresponding period of FY23. Despite price volatility in certain specific food items, headline inflation stayed below 6% throughout this year except in July and August 2023.

Ease of Doing Business in India

The Ministry of Corporate Affairs (MCA) has prescribed a Simplified Proforma for Incorporating Companies (SPICe) along with:

• e-MOA (Electronic Memorandum of Association)

• e-AoA (Electronic Articles of Association)

This eliminates the requirement of physically signing the Memorandum of Association (MoA) and Articles of Association (AOA) by the applicant. These measures help entrepreneurs to start a business in India without much hassle.

Nirvik Scheme for Exporters

The Export Credit Guarantee Corporation of India (ECGC) has introduced the 'NIRVIK' scheme to ease the lending process and enhance loan availability for exporters.

• The ‘NIRVIK' scheme is called the Export Credit Insurance Scheme (ECIS).

• The insurance cover guaranteed will cover up to 90% of the principal and interest.

• The insurance cover will include both pre- and post-shipment credit.

The main aim behind introducing the scheme was to enhance accessibility and affordability of credit for exporters.

Foreign Exchange Reserves in India

India's foreign exchange reserves surged to a record high of US$ 550,871 million as of 9th September, 2022.

Foreign Exchange Reserves (in US$ billion, year-end)

[Source: ES 2022-23 (DEC-2022)]

India’s Forex Reserves

Rising FPI inflows, coupled with a declining current account deficit (CAD), have resulted in a rise in foreign exchange reserves.

• India's forex reserves stand at USD 636 billion as of 8th March 2024, sufficient to provide an import cover of 11 months and more than 95% of the outstanding external debt.

• India currently holds the fourth-largest foreign exchange reserves in the world.

• Its reserves have increased by USD 40.6 billion in FY24 so far, the highest increase among major foreign exchange reserve-holding countries.

[Source: ES 2022-23]

Indian Rupee Exchange Rate (as on 19th May 2024)

• 1 US Dollar = 83.30 INR (₹1 = $0.012 USD)

• 1 Great Britain Pound = 105.49 INR (₹1 = £0.0095 GBP)

• 1 Euro = 90.58 INR (₹1 = €0.011 EUR)

Foreign exchange rates are not fixed; they change with new market conditions.

RBI's Gold Reserve

The Reserve Bank's gold reserves rose 4.5% to 794.64 tonnes in 2022-23. The Reserve Bank of India's gold reserves have risen by over 40% since it resumed the purchase of the yellow metal over five years ago. India's central bank, unlike others, never sells its gold.

Key Gold Reserve Data

• RBI held 760.42 metric tons as of March 31, 2022, compared to 695.31 metric tons as of March 31, 2021.

• The RBI added 34.22 metric tons of gold in FY 2022-23, taking the total to 794.64 metric tons.

• Gold reserves as of March 31, 2023, included gold deposits of 56.32 metric tons, according to the RBI's half-yearly report.

• India’s official gold reserves increased from 17.9 million troy ounces in December 2017 to 25.55 million troy ounces in April 2023.

The latest World Gold Council (WGC) report showed that MAS was the largest single buyer of gold (69 metric tons) during January-March 2023.

[Source: IE 9 May, 2023 and ET 8 June, 2023]

Final Thoughts

Inflation in India has shown mixed trends in recent years, with retail inflation averaging 5.4% in FY24, comfortably within the RBI’s tolerance band despite food price fluctuations.

The Wholesale Price Index (WPI), however, has remained more volatile, especially in 2021-22 when it touched double digits. To improve business ease, the government has simplified company registration through digital measures like SPICe, e-MOA, and e-AoA, making entrepreneurship less cumbersome. For exporters, the Nirvik scheme was launched to ensure up to 90% credit insurance, strengthening export financing.

On the external sector front, India’s foreign exchange reserves hit record highs, reaching USD 636 billion in March 2024, giving the country an import cover of 11 months and ranking it fourth globally. The rupee exchange rate continues to fluctuate with global conditions, standing at 83.30 per US dollar in May 2024.

At the same time, RBI’s gold reserves have grown steadily, rising to 794.64 tonnes in 2023—a 40% increase since 2017—reflecting a strategy of strengthening economic stability.