Prices and Inflation: Under Control (2023-24) | Indian Economy for UPSC CSE PDF Download

 Page 1


CHAPTER
03
PRICES AND INFLATION: 
UNDER CONTROL
The pandemic and subsequent geo-political tensions presented considerable challenges 
to the global economy in inflation management. The supply disruptions inflicted by 
the pandemic and increased commodity prices caused by heightened global conflicts 
markedly affected India. As a result, FY22 and FY23 witnessed price pressures in core 
consumer goods and services. Food prices were affected by adverse weather conditions 
in the last two years. The net impact of these developments was elevated inflationary 
pressures in FY23 and FY24. Prudent monetary policy response and calibrated trade 
policy measures by the Government, coupled with strong output growth, helped reduce 
core inflation to a four-year low in FY24. Appropriate administrative actions, including 
dynamic stock management, open market operations, subsidised provision of essential 
food items and trade policy measures, helped mitigate food inflation to a great extent. 
The expectation of a normal monsoon and moderating global prices of key imported 
items give credence to the benign and range-bound inflation projections for India made 
by the Reserve Bank of India and the International Monetary Fund. Beyond this, the 
medium to long-term inflation outlook will be shaped by the strengthening of price 
monitoring mechanisms and market intelligence as well as focussed efforts to increase 
the domestic production of essential food items like pulses and edible oils for which 
India has a great degree of import dependence.
INTRODUCTION
3.1 Low and stable inflation is key to sustaining economic growth. Governments and Central 
Banks face the challenge of keeping inflation at a moderate level while ensuring financial 
stability. Achieving this delicate balance requires careful monitoring of economic indicators 
and taking appropriate and timely corrective actions. With the commitment of the Reserve 
Bank of India (RBI) to the goal of price stability and policy actions by the Central Government, 
India successfully managed to keep retail inflation at 5.4 per cent in FY24, the lowest level since 
the Covid-19 pandemic period (‘pandemic’ hereinafter).
3.2. After the pandemic, the global economy experienced another set of supply chain disruptions 
beginning with the Russia-Ukraine war in the first half of FY23. In the latter half of the year and 
FY24, there was a decline in global inflation because of the diminishing impact of price shocks, 
particularly in energy prices, as well as lower core inflation and monetary tightening. According 
to the International Monetary Fund
1
, the coordinated monetary tightening by Central Banks in 
1  World Economic Outlook, April 2024: Steady but Slow: Resilience amid Divergence, pages 3-4. https://tinyurl.
com/38pederj
Page 2


CHAPTER
03
PRICES AND INFLATION: 
UNDER CONTROL
The pandemic and subsequent geo-political tensions presented considerable challenges 
to the global economy in inflation management. The supply disruptions inflicted by 
the pandemic and increased commodity prices caused by heightened global conflicts 
markedly affected India. As a result, FY22 and FY23 witnessed price pressures in core 
consumer goods and services. Food prices were affected by adverse weather conditions 
in the last two years. The net impact of these developments was elevated inflationary 
pressures in FY23 and FY24. Prudent monetary policy response and calibrated trade 
policy measures by the Government, coupled with strong output growth, helped reduce 
core inflation to a four-year low in FY24. Appropriate administrative actions, including 
dynamic stock management, open market operations, subsidised provision of essential 
food items and trade policy measures, helped mitigate food inflation to a great extent. 
The expectation of a normal monsoon and moderating global prices of key imported 
items give credence to the benign and range-bound inflation projections for India made 
by the Reserve Bank of India and the International Monetary Fund. Beyond this, the 
medium to long-term inflation outlook will be shaped by the strengthening of price 
monitoring mechanisms and market intelligence as well as focussed efforts to increase 
the domestic production of essential food items like pulses and edible oils for which 
India has a great degree of import dependence.
INTRODUCTION
3.1 Low and stable inflation is key to sustaining economic growth. Governments and Central 
Banks face the challenge of keeping inflation at a moderate level while ensuring financial 
stability. Achieving this delicate balance requires careful monitoring of economic indicators 
and taking appropriate and timely corrective actions. With the commitment of the Reserve 
Bank of India (RBI) to the goal of price stability and policy actions by the Central Government, 
India successfully managed to keep retail inflation at 5.4 per cent in FY24, the lowest level since 
the Covid-19 pandemic period (‘pandemic’ hereinafter).
3.2. After the pandemic, the global economy experienced another set of supply chain disruptions 
beginning with the Russia-Ukraine war in the first half of FY23. In the latter half of the year and 
FY24, there was a decline in global inflation because of the diminishing impact of price shocks, 
particularly in energy prices, as well as lower core inflation and monetary tightening. According 
to the International Monetary Fund
1
, the coordinated monetary tightening by Central Banks in 
1  World Economic Outlook, April 2024: Steady but Slow: Resilience amid Divergence, pages 3-4. https://tinyurl.
com/38pederj
Economic Survey 2023-24
86
major advanced economies during 2022-23 significantly contributed to the decline in energy 
prices due to its high level of synchronisation and the resulting impact on reducing global 
energy demand.
India’s retail inflation is lower than the EMDEs and world average
3.3. Despite the synchronous tightening of monetary policy by most central banks to restore 
price stability, the global economy has shown unexpected resilience in 2023. This is evident in 
both advanced economies (AEs), and emerging markets & developing economies (EMDEs), as 
they are returning to their inflation targets. This trend is also observed in India. As per the IMF
2
 
data, where India’s inflation rate was lower than the global average and that of EMDEs in 2022 
and 2023. 
3.4. There is a clear negative relationship between cross-country inflation and per capita GDP. 
Historically, inflation in advanced economies has generally been lower than in EMDEs. Factors 
such as established monetary policies, economic stability, well-developed and efficient markets 
that balance supply and demand conditions, and stable currencies contribute to the effective 
management of inflation (Ha, Kose & Ohnsurge, 2018)
3
. 
Chart III.1: India's inflation lower 
than EMDEs in 2023
Chart III.2: AEs tend to have lower 
inflation compared to EMDEs
3. 2
6. 8
0. 7
4. 6
5. 2
8. 3
6. 2
5. 4
0
2
4
6
8
10
12
2020 2021 2022 2023
Per cent
W o rld A Es
EMD Es Ind ia
India
y = 42515 -7037.5x 
0
20
40
60
80
100
0 5 10
Avg. GDP per Capita at current prices, 
2015-20, (000' USD)
Avg. Inflation, 2015-20 ( %)
Source: World Economic Outlook Database, April 2024, IMF 
Note: (i) Chart III.2 excludes countries with GDP lower than USD100 billion & double-digit inflation
    (ii) In IMF data, for India 2023 represents FY2023-24 (FY24)
   (iii) Blue coloured dots for AEs and Red coloured dots for EMDEs
India’s inflation management was relatively better to keep it within 
the target 
3.5. With the goal of maintaining price stability, many countries have established their own 
inflation targets based on various factors that serve their economic objectives best. Factors such 
as the level of economic development, the structure of the economy, the state of the financial 
2   World Economic Outlook, April 2024: Steady but Slow: Resilience amid Divergence, page 145
3     Ha, Jongrim; Kose, Ayhan; Ohnsorge, Franziska Lieselotte (2018). Inflation in Emerging and Developing 
Economies: Evolution, Drivers, and Policies. World Bank Group, Washington, D.C. https://tinyurl.com yf2zzx95s
Page 3


CHAPTER
03
PRICES AND INFLATION: 
UNDER CONTROL
The pandemic and subsequent geo-political tensions presented considerable challenges 
to the global economy in inflation management. The supply disruptions inflicted by 
the pandemic and increased commodity prices caused by heightened global conflicts 
markedly affected India. As a result, FY22 and FY23 witnessed price pressures in core 
consumer goods and services. Food prices were affected by adverse weather conditions 
in the last two years. The net impact of these developments was elevated inflationary 
pressures in FY23 and FY24. Prudent monetary policy response and calibrated trade 
policy measures by the Government, coupled with strong output growth, helped reduce 
core inflation to a four-year low in FY24. Appropriate administrative actions, including 
dynamic stock management, open market operations, subsidised provision of essential 
food items and trade policy measures, helped mitigate food inflation to a great extent. 
The expectation of a normal monsoon and moderating global prices of key imported 
items give credence to the benign and range-bound inflation projections for India made 
by the Reserve Bank of India and the International Monetary Fund. Beyond this, the 
medium to long-term inflation outlook will be shaped by the strengthening of price 
monitoring mechanisms and market intelligence as well as focussed efforts to increase 
the domestic production of essential food items like pulses and edible oils for which 
India has a great degree of import dependence.
INTRODUCTION
3.1 Low and stable inflation is key to sustaining economic growth. Governments and Central 
Banks face the challenge of keeping inflation at a moderate level while ensuring financial 
stability. Achieving this delicate balance requires careful monitoring of economic indicators 
and taking appropriate and timely corrective actions. With the commitment of the Reserve 
Bank of India (RBI) to the goal of price stability and policy actions by the Central Government, 
India successfully managed to keep retail inflation at 5.4 per cent in FY24, the lowest level since 
the Covid-19 pandemic period (‘pandemic’ hereinafter).
3.2. After the pandemic, the global economy experienced another set of supply chain disruptions 
beginning with the Russia-Ukraine war in the first half of FY23. In the latter half of the year and 
FY24, there was a decline in global inflation because of the diminishing impact of price shocks, 
particularly in energy prices, as well as lower core inflation and monetary tightening. According 
to the International Monetary Fund
1
, the coordinated monetary tightening by Central Banks in 
1  World Economic Outlook, April 2024: Steady but Slow: Resilience amid Divergence, pages 3-4. https://tinyurl.
com/38pederj
Economic Survey 2023-24
86
major advanced economies during 2022-23 significantly contributed to the decline in energy 
prices due to its high level of synchronisation and the resulting impact on reducing global 
energy demand.
India’s retail inflation is lower than the EMDEs and world average
3.3. Despite the synchronous tightening of monetary policy by most central banks to restore 
price stability, the global economy has shown unexpected resilience in 2023. This is evident in 
both advanced economies (AEs), and emerging markets & developing economies (EMDEs), as 
they are returning to their inflation targets. This trend is also observed in India. As per the IMF
2
 
data, where India’s inflation rate was lower than the global average and that of EMDEs in 2022 
and 2023. 
3.4. There is a clear negative relationship between cross-country inflation and per capita GDP. 
Historically, inflation in advanced economies has generally been lower than in EMDEs. Factors 
such as established monetary policies, economic stability, well-developed and efficient markets 
that balance supply and demand conditions, and stable currencies contribute to the effective 
management of inflation (Ha, Kose & Ohnsurge, 2018)
3
. 
Chart III.1: India's inflation lower 
than EMDEs in 2023
Chart III.2: AEs tend to have lower 
inflation compared to EMDEs
3. 2
6. 8
0. 7
4. 6
5. 2
8. 3
6. 2
5. 4
0
2
4
6
8
10
12
2020 2021 2022 2023
Per cent
W o rld A Es
EMD Es Ind ia
India
y = 42515 -7037.5x 
0
20
40
60
80
100
0 5 10
Avg. GDP per Capita at current prices, 
2015-20, (000' USD)
Avg. Inflation, 2015-20 ( %)
Source: World Economic Outlook Database, April 2024, IMF 
Note: (i) Chart III.2 excludes countries with GDP lower than USD100 billion & double-digit inflation
    (ii) In IMF data, for India 2023 represents FY2023-24 (FY24)
   (iii) Blue coloured dots for AEs and Red coloured dots for EMDEs
India’s inflation management was relatively better to keep it within 
the target 
3.5. With the goal of maintaining price stability, many countries have established their own 
inflation targets based on various factors that serve their economic objectives best. Factors such 
as the level of economic development, the structure of the economy, the state of the financial 
2   World Economic Outlook, April 2024: Steady but Slow: Resilience amid Divergence, page 145
3     Ha, Jongrim; Kose, Ayhan; Ohnsorge, Franziska Lieselotte (2018). Inflation in Emerging and Developing 
Economies: Evolution, Drivers, and Policies. World Bank Group, Washington, D.C. https://tinyurl.com yf2zzx95s
Prices and Inflation
87
system, and the trade-off between inflation and other economic objectives may influence these 
targets (Jahan, Sarwat)
4
. In pursuit of specific inflation targets set by countries, they employ 
various policies and measures. Interestingly, India is performing better than various developed 
and emerging economies in relation to its inflation target. 
3.6. In 2023, India's inflation rate was within its target range of 2 to 6 per cent. Compared 
to advanced economies like the USA, Germany, and France, India had one of the lowest 
deviations from its inflation target in the triennial average inflation from 2021-2023. Despite 
the challenges posed by global demand-supply imbalances due to ongoing geopolitical tensions, 
India’s inflation rate was 1.4 percentage points below the global average in 2023. Against this 
background, the survey discusses trends and drivers of retail inflation and its constituents – 
headline, core, and food inflation, state-wise variations in retail inflation, rural-urban inflation 
differential and fiscal policy measures undertaken to contain inflation as the chapter proceeds.
Chart III.3: India is closer to its 
inflation target compared to most 
other economies
Chart III.4: India has one of the lowest 
average deviations (2021-2023) from 
inflation target
4.1
4.6
5.4
5.5
5.7
5.9 5.9
6.0
7.3
2
3.25
4
3
2
4
4.5
2 2
USA
Brazil
India
Mexico
France
Russia
S. Africa
Germany
UK
Per cent
2023 Inflation Target
4.8
4.3
4.0
3.9
3.6
3.4
2.6
1.8
1.3
Russia
UK
Germany
Brazil
USA
Mexico
France
India
S. Africa
Per cent
Source: World Economic Outlook Database, April 2024, IMF 
Note: (i) Inflation target is taken from respective countries' Monetary Policy documents.
   (ii) In IMF data, for India 2023 represents FY2023-24 (FY24)
  (iii) For S. Africa, 4.5% is taken as a midpoint of 3-6% inflation target range
  (iv) For Brazil, inflation target was 3.75% in 2021, 3.5% in 2022 and 3.25% in 2023
DOMESTIC RETAIL INFLATION
Retail inflation moderated gradually in FY24 
3.7. Since 2020, countries have been facing challenges in controlling inflation. In FY23, 
Consumer Price Index (CPI) based retail inflation in India was primarily influenced by higher 
food inflation, while core inflation remained moderate. Externally, the Russia-Ukraine war led 
to price pressures, while domestically, excessive heat in the summer and uneven rainfall put 
pressure on food prices. 
4     Jahan, Sarwat. Inflation Targeting: Holding the Line, Understanding Economics, Back to the Basics, Finance & 
Development, IMF https://tinyurl.com/yjwn9ff6
Page 4


CHAPTER
03
PRICES AND INFLATION: 
UNDER CONTROL
The pandemic and subsequent geo-political tensions presented considerable challenges 
to the global economy in inflation management. The supply disruptions inflicted by 
the pandemic and increased commodity prices caused by heightened global conflicts 
markedly affected India. As a result, FY22 and FY23 witnessed price pressures in core 
consumer goods and services. Food prices were affected by adverse weather conditions 
in the last two years. The net impact of these developments was elevated inflationary 
pressures in FY23 and FY24. Prudent monetary policy response and calibrated trade 
policy measures by the Government, coupled with strong output growth, helped reduce 
core inflation to a four-year low in FY24. Appropriate administrative actions, including 
dynamic stock management, open market operations, subsidised provision of essential 
food items and trade policy measures, helped mitigate food inflation to a great extent. 
The expectation of a normal monsoon and moderating global prices of key imported 
items give credence to the benign and range-bound inflation projections for India made 
by the Reserve Bank of India and the International Monetary Fund. Beyond this, the 
medium to long-term inflation outlook will be shaped by the strengthening of price 
monitoring mechanisms and market intelligence as well as focussed efforts to increase 
the domestic production of essential food items like pulses and edible oils for which 
India has a great degree of import dependence.
INTRODUCTION
3.1 Low and stable inflation is key to sustaining economic growth. Governments and Central 
Banks face the challenge of keeping inflation at a moderate level while ensuring financial 
stability. Achieving this delicate balance requires careful monitoring of economic indicators 
and taking appropriate and timely corrective actions. With the commitment of the Reserve 
Bank of India (RBI) to the goal of price stability and policy actions by the Central Government, 
India successfully managed to keep retail inflation at 5.4 per cent in FY24, the lowest level since 
the Covid-19 pandemic period (‘pandemic’ hereinafter).
3.2. After the pandemic, the global economy experienced another set of supply chain disruptions 
beginning with the Russia-Ukraine war in the first half of FY23. In the latter half of the year and 
FY24, there was a decline in global inflation because of the diminishing impact of price shocks, 
particularly in energy prices, as well as lower core inflation and monetary tightening. According 
to the International Monetary Fund
1
, the coordinated monetary tightening by Central Banks in 
1  World Economic Outlook, April 2024: Steady but Slow: Resilience amid Divergence, pages 3-4. https://tinyurl.
com/38pederj
Economic Survey 2023-24
86
major advanced economies during 2022-23 significantly contributed to the decline in energy 
prices due to its high level of synchronisation and the resulting impact on reducing global 
energy demand.
India’s retail inflation is lower than the EMDEs and world average
3.3. Despite the synchronous tightening of monetary policy by most central banks to restore 
price stability, the global economy has shown unexpected resilience in 2023. This is evident in 
both advanced economies (AEs), and emerging markets & developing economies (EMDEs), as 
they are returning to their inflation targets. This trend is also observed in India. As per the IMF
2
 
data, where India’s inflation rate was lower than the global average and that of EMDEs in 2022 
and 2023. 
3.4. There is a clear negative relationship between cross-country inflation and per capita GDP. 
Historically, inflation in advanced economies has generally been lower than in EMDEs. Factors 
such as established monetary policies, economic stability, well-developed and efficient markets 
that balance supply and demand conditions, and stable currencies contribute to the effective 
management of inflation (Ha, Kose & Ohnsurge, 2018)
3
. 
Chart III.1: India's inflation lower 
than EMDEs in 2023
Chart III.2: AEs tend to have lower 
inflation compared to EMDEs
3. 2
6. 8
0. 7
4. 6
5. 2
8. 3
6. 2
5. 4
0
2
4
6
8
10
12
2020 2021 2022 2023
Per cent
W o rld A Es
EMD Es Ind ia
India
y = 42515 -7037.5x 
0
20
40
60
80
100
0 5 10
Avg. GDP per Capita at current prices, 
2015-20, (000' USD)
Avg. Inflation, 2015-20 ( %)
Source: World Economic Outlook Database, April 2024, IMF 
Note: (i) Chart III.2 excludes countries with GDP lower than USD100 billion & double-digit inflation
    (ii) In IMF data, for India 2023 represents FY2023-24 (FY24)
   (iii) Blue coloured dots for AEs and Red coloured dots for EMDEs
India’s inflation management was relatively better to keep it within 
the target 
3.5. With the goal of maintaining price stability, many countries have established their own 
inflation targets based on various factors that serve their economic objectives best. Factors such 
as the level of economic development, the structure of the economy, the state of the financial 
2   World Economic Outlook, April 2024: Steady but Slow: Resilience amid Divergence, page 145
3     Ha, Jongrim; Kose, Ayhan; Ohnsorge, Franziska Lieselotte (2018). Inflation in Emerging and Developing 
Economies: Evolution, Drivers, and Policies. World Bank Group, Washington, D.C. https://tinyurl.com yf2zzx95s
Prices and Inflation
87
system, and the trade-off between inflation and other economic objectives may influence these 
targets (Jahan, Sarwat)
4
. In pursuit of specific inflation targets set by countries, they employ 
various policies and measures. Interestingly, India is performing better than various developed 
and emerging economies in relation to its inflation target. 
3.6. In 2023, India's inflation rate was within its target range of 2 to 6 per cent. Compared 
to advanced economies like the USA, Germany, and France, India had one of the lowest 
deviations from its inflation target in the triennial average inflation from 2021-2023. Despite 
the challenges posed by global demand-supply imbalances due to ongoing geopolitical tensions, 
India’s inflation rate was 1.4 percentage points below the global average in 2023. Against this 
background, the survey discusses trends and drivers of retail inflation and its constituents – 
headline, core, and food inflation, state-wise variations in retail inflation, rural-urban inflation 
differential and fiscal policy measures undertaken to contain inflation as the chapter proceeds.
Chart III.3: India is closer to its 
inflation target compared to most 
other economies
Chart III.4: India has one of the lowest 
average deviations (2021-2023) from 
inflation target
4.1
4.6
5.4
5.5
5.7
5.9 5.9
6.0
7.3
2
3.25
4
3
2
4
4.5
2 2
USA
Brazil
India
Mexico
France
Russia
S. Africa
Germany
UK
Per cent
2023 Inflation Target
4.8
4.3
4.0
3.9
3.6
3.4
2.6
1.8
1.3
Russia
UK
Germany
Brazil
USA
Mexico
France
India
S. Africa
Per cent
Source: World Economic Outlook Database, April 2024, IMF 
Note: (i) Inflation target is taken from respective countries' Monetary Policy documents.
   (ii) In IMF data, for India 2023 represents FY2023-24 (FY24)
  (iii) For S. Africa, 4.5% is taken as a midpoint of 3-6% inflation target range
  (iv) For Brazil, inflation target was 3.75% in 2021, 3.5% in 2022 and 3.25% in 2023
DOMESTIC RETAIL INFLATION
Retail inflation moderated gradually in FY24 
3.7. Since 2020, countries have been facing challenges in controlling inflation. In FY23, 
Consumer Price Index (CPI) based retail inflation in India was primarily influenced by higher 
food inflation, while core inflation remained moderate. Externally, the Russia-Ukraine war led 
to price pressures, while domestically, excessive heat in the summer and uneven rainfall put 
pressure on food prices. 
4     Jahan, Sarwat. Inflation Targeting: Holding the Line, Understanding Economics, Back to the Basics, Finance & 
Development, IMF https://tinyurl.com/yjwn9ff6
Economic Survey 2023-24
88
3.8. However, since May 2022, monetary policy broadly focused on absorbing excess liquidity 
in the system by increasing the policy repo rate by 250 basis points from 4 per cent in May 2022 
to 6.5 per cent in February 2023. Thereafter, the policy rate was kept unchanged by focusing 
on the gradual withdrawal of accommodation, aiming to align inflation with the target, while 
simultaneously fostering growth. Consequently, the persistent and sticky core inflation observed 
in FY23 declined to 3.1 per cent in June 2024.
Chart III.5: Retail headline inflation 
was lowest in FY24 since the pandemic
Chart III.6: Declining trend in 
headline and core inflation 
5.4
4.3
3.8
7.5
0
1
2
3
4
5
6
7
8
9
FY20
FY21
FY22
FY23
FY24
Per cent
Headline Inflation
Core Inflation
Food Inflation (CFPI)
5.1
3.1
9.4
0
4
8
12
16
Apr-23
Jun-23
Aug-23
Oct-23
Dec-23
Feb-24
Apr-24
Jun-24
Per cent
He adline Inflation
Core Inflation
Food Inflation (CFPI)
Source: Consumer Price Indices released by CSO, MoSPI
3.9. As the global energy price index experienced a sharp decline in FY24, retail fuel inflation 
also stayed low. The Central Government's announcement of price cuts for LPG, petrol, and 
diesel led to lower LPG and petroleum product inflation. In August 2023, the price of a domestic 
LPG cylinder was reduced by ?200 per cylinder in all markets across the country. As a result, 
LPG inflation rate has been in the deflationary zone since September 2023. Again in March 
2024, the price of non-subsidised LPG cylinders was reduced by ?100 per cylinder. Similarly, 
in March 2024, the Central Government lowered the prices of petrol and diesel by ?2 per litre. 
Subsequently, retail inflation in petrol and diesel used in vehicles moved to the deflationary 
zone in March 2024. Additionally, global commodity prices declined in 2023, reducing price 
pressure in energy, metals, minerals, and agricultural commodities through the imported 
inflation channel. Low fuel and core inflation ensured a downward trajectory for headline 
inflation, despite volatility in food prices in FY24.
3.10. Thus, moderation in inflation was largely the result of prudent administrative measures 
and monetary policies implemented during the post-pandemic economic recovery phase. As 
per the recent data released by MoSPI, the retail inflation rate was 5.1 per cent in June 2024. In 
view of this, the following section examines the detailed trends and patterns in core and food 
inflation.
Page 5


CHAPTER
03
PRICES AND INFLATION: 
UNDER CONTROL
The pandemic and subsequent geo-political tensions presented considerable challenges 
to the global economy in inflation management. The supply disruptions inflicted by 
the pandemic and increased commodity prices caused by heightened global conflicts 
markedly affected India. As a result, FY22 and FY23 witnessed price pressures in core 
consumer goods and services. Food prices were affected by adverse weather conditions 
in the last two years. The net impact of these developments was elevated inflationary 
pressures in FY23 and FY24. Prudent monetary policy response and calibrated trade 
policy measures by the Government, coupled with strong output growth, helped reduce 
core inflation to a four-year low in FY24. Appropriate administrative actions, including 
dynamic stock management, open market operations, subsidised provision of essential 
food items and trade policy measures, helped mitigate food inflation to a great extent. 
The expectation of a normal monsoon and moderating global prices of key imported 
items give credence to the benign and range-bound inflation projections for India made 
by the Reserve Bank of India and the International Monetary Fund. Beyond this, the 
medium to long-term inflation outlook will be shaped by the strengthening of price 
monitoring mechanisms and market intelligence as well as focussed efforts to increase 
the domestic production of essential food items like pulses and edible oils for which 
India has a great degree of import dependence.
INTRODUCTION
3.1 Low and stable inflation is key to sustaining economic growth. Governments and Central 
Banks face the challenge of keeping inflation at a moderate level while ensuring financial 
stability. Achieving this delicate balance requires careful monitoring of economic indicators 
and taking appropriate and timely corrective actions. With the commitment of the Reserve 
Bank of India (RBI) to the goal of price stability and policy actions by the Central Government, 
India successfully managed to keep retail inflation at 5.4 per cent in FY24, the lowest level since 
the Covid-19 pandemic period (‘pandemic’ hereinafter).
3.2. After the pandemic, the global economy experienced another set of supply chain disruptions 
beginning with the Russia-Ukraine war in the first half of FY23. In the latter half of the year and 
FY24, there was a decline in global inflation because of the diminishing impact of price shocks, 
particularly in energy prices, as well as lower core inflation and monetary tightening. According 
to the International Monetary Fund
1
, the coordinated monetary tightening by Central Banks in 
1  World Economic Outlook, April 2024: Steady but Slow: Resilience amid Divergence, pages 3-4. https://tinyurl.
com/38pederj
Economic Survey 2023-24
86
major advanced economies during 2022-23 significantly contributed to the decline in energy 
prices due to its high level of synchronisation and the resulting impact on reducing global 
energy demand.
India’s retail inflation is lower than the EMDEs and world average
3.3. Despite the synchronous tightening of monetary policy by most central banks to restore 
price stability, the global economy has shown unexpected resilience in 2023. This is evident in 
both advanced economies (AEs), and emerging markets & developing economies (EMDEs), as 
they are returning to their inflation targets. This trend is also observed in India. As per the IMF
2
 
data, where India’s inflation rate was lower than the global average and that of EMDEs in 2022 
and 2023. 
3.4. There is a clear negative relationship between cross-country inflation and per capita GDP. 
Historically, inflation in advanced economies has generally been lower than in EMDEs. Factors 
such as established monetary policies, economic stability, well-developed and efficient markets 
that balance supply and demand conditions, and stable currencies contribute to the effective 
management of inflation (Ha, Kose & Ohnsurge, 2018)
3
. 
Chart III.1: India's inflation lower 
than EMDEs in 2023
Chart III.2: AEs tend to have lower 
inflation compared to EMDEs
3. 2
6. 8
0. 7
4. 6
5. 2
8. 3
6. 2
5. 4
0
2
4
6
8
10
12
2020 2021 2022 2023
Per cent
W o rld A Es
EMD Es Ind ia
India
y = 42515 -7037.5x 
0
20
40
60
80
100
0 5 10
Avg. GDP per Capita at current prices, 
2015-20, (000' USD)
Avg. Inflation, 2015-20 ( %)
Source: World Economic Outlook Database, April 2024, IMF 
Note: (i) Chart III.2 excludes countries with GDP lower than USD100 billion & double-digit inflation
    (ii) In IMF data, for India 2023 represents FY2023-24 (FY24)
   (iii) Blue coloured dots for AEs and Red coloured dots for EMDEs
India’s inflation management was relatively better to keep it within 
the target 
3.5. With the goal of maintaining price stability, many countries have established their own 
inflation targets based on various factors that serve their economic objectives best. Factors such 
as the level of economic development, the structure of the economy, the state of the financial 
2   World Economic Outlook, April 2024: Steady but Slow: Resilience amid Divergence, page 145
3     Ha, Jongrim; Kose, Ayhan; Ohnsorge, Franziska Lieselotte (2018). Inflation in Emerging and Developing 
Economies: Evolution, Drivers, and Policies. World Bank Group, Washington, D.C. https://tinyurl.com yf2zzx95s
Prices and Inflation
87
system, and the trade-off between inflation and other economic objectives may influence these 
targets (Jahan, Sarwat)
4
. In pursuit of specific inflation targets set by countries, they employ 
various policies and measures. Interestingly, India is performing better than various developed 
and emerging economies in relation to its inflation target. 
3.6. In 2023, India's inflation rate was within its target range of 2 to 6 per cent. Compared 
to advanced economies like the USA, Germany, and France, India had one of the lowest 
deviations from its inflation target in the triennial average inflation from 2021-2023. Despite 
the challenges posed by global demand-supply imbalances due to ongoing geopolitical tensions, 
India’s inflation rate was 1.4 percentage points below the global average in 2023. Against this 
background, the survey discusses trends and drivers of retail inflation and its constituents – 
headline, core, and food inflation, state-wise variations in retail inflation, rural-urban inflation 
differential and fiscal policy measures undertaken to contain inflation as the chapter proceeds.
Chart III.3: India is closer to its 
inflation target compared to most 
other economies
Chart III.4: India has one of the lowest 
average deviations (2021-2023) from 
inflation target
4.1
4.6
5.4
5.5
5.7
5.9 5.9
6.0
7.3
2
3.25
4
3
2
4
4.5
2 2
USA
Brazil
India
Mexico
France
Russia
S. Africa
Germany
UK
Per cent
2023 Inflation Target
4.8
4.3
4.0
3.9
3.6
3.4
2.6
1.8
1.3
Russia
UK
Germany
Brazil
USA
Mexico
France
India
S. Africa
Per cent
Source: World Economic Outlook Database, April 2024, IMF 
Note: (i) Inflation target is taken from respective countries' Monetary Policy documents.
   (ii) In IMF data, for India 2023 represents FY2023-24 (FY24)
  (iii) For S. Africa, 4.5% is taken as a midpoint of 3-6% inflation target range
  (iv) For Brazil, inflation target was 3.75% in 2021, 3.5% in 2022 and 3.25% in 2023
DOMESTIC RETAIL INFLATION
Retail inflation moderated gradually in FY24 
3.7. Since 2020, countries have been facing challenges in controlling inflation. In FY23, 
Consumer Price Index (CPI) based retail inflation in India was primarily influenced by higher 
food inflation, while core inflation remained moderate. Externally, the Russia-Ukraine war led 
to price pressures, while domestically, excessive heat in the summer and uneven rainfall put 
pressure on food prices. 
4     Jahan, Sarwat. Inflation Targeting: Holding the Line, Understanding Economics, Back to the Basics, Finance & 
Development, IMF https://tinyurl.com/yjwn9ff6
Economic Survey 2023-24
88
3.8. However, since May 2022, monetary policy broadly focused on absorbing excess liquidity 
in the system by increasing the policy repo rate by 250 basis points from 4 per cent in May 2022 
to 6.5 per cent in February 2023. Thereafter, the policy rate was kept unchanged by focusing 
on the gradual withdrawal of accommodation, aiming to align inflation with the target, while 
simultaneously fostering growth. Consequently, the persistent and sticky core inflation observed 
in FY23 declined to 3.1 per cent in June 2024.
Chart III.5: Retail headline inflation 
was lowest in FY24 since the pandemic
Chart III.6: Declining trend in 
headline and core inflation 
5.4
4.3
3.8
7.5
0
1
2
3
4
5
6
7
8
9
FY20
FY21
FY22
FY23
FY24
Per cent
Headline Inflation
Core Inflation
Food Inflation (CFPI)
5.1
3.1
9.4
0
4
8
12
16
Apr-23
Jun-23
Aug-23
Oct-23
Dec-23
Feb-24
Apr-24
Jun-24
Per cent
He adline Inflation
Core Inflation
Food Inflation (CFPI)
Source: Consumer Price Indices released by CSO, MoSPI
3.9. As the global energy price index experienced a sharp decline in FY24, retail fuel inflation 
also stayed low. The Central Government's announcement of price cuts for LPG, petrol, and 
diesel led to lower LPG and petroleum product inflation. In August 2023, the price of a domestic 
LPG cylinder was reduced by ?200 per cylinder in all markets across the country. As a result, 
LPG inflation rate has been in the deflationary zone since September 2023. Again in March 
2024, the price of non-subsidised LPG cylinders was reduced by ?100 per cylinder. Similarly, 
in March 2024, the Central Government lowered the prices of petrol and diesel by ?2 per litre. 
Subsequently, retail inflation in petrol and diesel used in vehicles moved to the deflationary 
zone in March 2024. Additionally, global commodity prices declined in 2023, reducing price 
pressure in energy, metals, minerals, and agricultural commodities through the imported 
inflation channel. Low fuel and core inflation ensured a downward trajectory for headline 
inflation, despite volatility in food prices in FY24.
3.10. Thus, moderation in inflation was largely the result of prudent administrative measures 
and monetary policies implemented during the post-pandemic economic recovery phase. As 
per the recent data released by MoSPI, the retail inflation rate was 5.1 per cent in June 2024. In 
view of this, the following section examines the detailed trends and patterns in core and food 
inflation.
Prices and Inflation
89
Chart III.7: ‘Clothing & Footwear’ and 
‘Fuel & Light’ groups saw a substantial 
decline in inflation rate in FY24
Chart III.8: Decreasing global energy 
index in FY24
6.7
2.2
9.5
4.3
10.3
6.3
7.0
3.6
4.7
3.9
1.2
4.5
Food & beverages
Pan, tobacco &
intoxicants
Clothing &
footwear
Housing
Fuel and light
Miscellaneous
Per cent
FY24
FY23
0
40
80
120
160
200
Feb-20
Jun-20
Oct-20
Feb-21
Jun-21
Oct-21
Feb-22
Jun-22
Oct-22
Feb-23
Jun-23
Oct-23
Feb-24
Jun-24
I nde x
World Bank - Energy Index
Source: Consumer Price Indices released by CSO, MoSPI Source: Pink sheet, World Bank
Chart III.9: Decrease in LPG inflation 
rate due to price cut/subsidy
Chart III.10: Decline in petrol and 
diesel inflation rate due to price 
reduction measures
-30
-20
-10
0
10
20
Apr-23
Jun-23
Aug-23
Oct-23
Dec-23
Feb-24
Apr-24
Jun-24
Per cent
-4
-2
0
2
Sep-23
Oct-23
Nov-23
Dec-23
Jan-24
Feb-24
Mar-24
Apr-24
May-24
Jun-24
Per cent
petrol for vehicle diesel for vehicle
Source: Consumer Price Indices released by CSO, MoSPI
CORE INFLATION DYNAMICS IN THE POST-PANDEMIC 
WORLD
Core inflation hits a four-year low in FY24
3.11. Core inflation is measured by excluding food and energy items from CPI headline 
inflation. It assesses the underlying price trends by largely eliminating the impact of price 
volatilities arising from transitory supply shocks. The following discussion splits core inflation 
into its goods and services components. Core goods are further split into consumer durables 
and consumer non-durables. The items and weights to segregate core goods and services 
indices is given in Annexure 1. The breakdown of core inflation into its components is given in 
Chart III.11.