Inflation is defined as the reduction in the value of currency Inflation erodes the value of money and financial assets. The value of money depends on what it will buy. As prices go up, the purchasing power of money declines. The value of your bank balance also decreases since with higher prices, it takes more money to purchase the same quantity of goods and services. If I say that money is being stolen from your wallet right now. How will you feel? If you keep Rs. 1 lakh in your locker right now and you open the locker straight after 10 years, then you won’t have 1 lakh rupees! You’ll only have sixty thousand! But who stole this money? The answer is INFLATION. A consumer has to make some spends to live his/her life, for e.g.: food, housing, clothes, transport, electronics, medical costs, education, etc. If the process of these essential items increases, more expenditure will be there every year. If you spend Rs. 10000 a month, in 2021 for your needs and in 2022, you need Rs. 10500 to buy same things, every month, so the Rs. 500 or 5% is the yearly inflation rate. If someone understands the concept of inflation best from your home is your domestic help who has already decided before she takes your work that her salary will increase, every year, by 10% or more. Inflation steals your money by making your currency hold less value. Economists justify this as part of their role as overseers of the economy – to keep the money flowing. The modern monetary theory argues that governments should be allowed to print as much money as they need to remain solvent. Belief in this concept is not widely held, but the notion of printing as much money as needed always makes its way on the table in a crisis, and the corona virus pandemic is no exception.

In July 2022, India's rupee breached a historic low of 80 to a dollar mark for a day. While the Finance Minister, Nirmala Sitharaman, in the Parliament cited factors such as the Russia–Ukraine war and rising oil prices behind the depreciation, the Reserve Bank of India (RBI) Governor spoke about the simultaneous dumping of financial assets by the foreign portfolio investors (FPIs). Till July 2022, the FPIs sold off US$ 29.6 billion worth of Indian equity and debt after three straight years of net positive investments in Indian financial markets. The inflation growth rate is halted for the time being, but it has not drastically gone down either. July World Price Index (WPI) inflation was at 13.93 percent—compared to 15.18 percent in June. So, the prices in the economy will remain at a high level. Therefore, monetary tightening by the RBI is here to stay. If a country with free capital mobility fixes its exchange rate with the US dollar and then sets interest rates above the Federal Reserve rates, then foreign capital would flood in, mainly in search of higher returns. Heightened capital inflow would then raise the demand for the local currency and eventually, the local currency would appreciate, breaking the peg with the US dollar. Similarly, if interest rates are set below Fed rates, then there will be a capital flight and subsequent depreciation of the local currency, once again breaking the dollar peg. So, when capital flow restriction cannot be practically implemented, which is the case in today’s globalised financial world, the policy trilemma boils down to two choices: (a) Floating exchange rate and an independent monetary policy, and (b) fixed exchange rate and external monetary policy dependence. Rich developed countries go for the first option, while some others (like most of the countries that adopted the euro) have to follow the second one. Measures that India could take to improve value of Rupee: India fits into the first option bracket. The country has capital mobility, a floating exchange rate and an independent monetary policy—by which it sets domestic interest rates as per the need of the economy. However, the policy tussle remains and what the Indian rupee is experiencing in the last four years bears testimony to that. The RBI periodically intervenes in the foreign exchange market to stabilise the rupee, but the policy trilemma is bound to make the apex bank’s foothold extremely slippery in its quest for simultaneous exchange rate and inflation management.

On August 25, the government decided to put restrictions on the export of wheat or meslin flour to curb rising prices of the commodity. The decision was taken at a meeting of the Cabinet Committee on Economic Affairs (CCEA). “The Cabinet Committee on Economic Affairs has approved the proposal for amendment of policy of exemption for wheat or meslin flour from export restrictions/ban,” an official statement has said. Russia and Ukraine are the major exporters of wheat, accounting for a major part of the global wheat trade. The war between the two countries has led to global wheat supply chain with unsettling confusions, thus increasing the demand for Indian wheat. As a result, the price of wheat in the domestic market has shown an increase. The all-India average retail price of wheat has risen by over 22 per cent to Rs 31.04 per kg as on August 22, compared to Rs 25.41 per kg in the year-ago period, according to data maintained by the consumer affairs ministry. The average retail price of wheat flour (Atta) has increased by over 17 per cent to Rs 35.17 per kg as against Rs 30.04 earlier, the data showed. Comparative data for the Consumer Food Price Index – a measure of the change in the price of foods consumed by a typical family in India – available from January 2014, produces similar results: prices have increased by 70% between January 2014 and March 2022. “Inflation happened because of global factors like commodities (such as agricultural produce) price rise, energy price rise and interest rate hikes by the United States Federal Reserve, as well as supply side factors caused by Covid-induced lockdowns,” explained Lekha Chakroborty, professor of economics at the National Institute of Public Finance and Policy. When the price of inputs for producers of goods and services increases, they pass it on to the consumers in the form of higher prices. While the demand for goods and services has been low since the pandemic, the supply has been even tighter, because of the rise in fuel prices and the Russia-Ukraine war, said Sengupta.

According to a recent report by the Centre for Economic and Business Research, India may overtake France in 2022 to become the sixth-largest economy in the world. The feel-good factor for India is that the report also predicts that India will overtake Germany by 2031 to become the third-largest economy in the world with a GDP of more than US$6.8 trillion. But despite 75 years of its independence, India faces some major Economic challenges which prove to be a barrier in its growth, they are: · Unemployment: The overall unemployment rate eased to 6.80% in July, a 1 per cent decline compared to June, the lowest since 6.56% in January, Centre for Monitoring Indian Economy (CMIE) a private organisation reported on Monday. Despite rapid economic growth, the major problem that the Indian economy faces is unemployment. People are jobless not only in rural areas but also in urban areas. · Lack of Education due to High Costs: In India, many people remain illiterate. There are several parts of the country where females are still not given the right to get an education. This happens because education is too costly, and all cannot meet education costs. This results in lesser job opportunities because all sectors need workers who can be trained or know the working of complex machinery. Thus, lack of education leads to lesser job opportunities for the people. · The Economic Difference between Poor and Rich: There is a vast difference in wealth between the rich and the poor. Rich is getting richer, and the poor are getting poorer. The distribution of income in India is hugely uneven, which is quite unfair and stops the country from growing. · Agriculture predominates the Indian economy: According to a report, agriculture provides employment to 60% of the population of India and, in turn, forms 17% of the GDP in India. Agriculture has grown in India, and various commodities are produced in the country itself. The articles produced from agriculture undergo various operations before reaching the market like transportation, bagging, storage, etc. These operations employ people and contribute to India’s economy. · Lack of Infrastructure: India lacks an efficient infrastructure. This means India lacks the basic system required to work to perfection. A perfect example of the same can be seen as a lack of irrigation facilities for the farmers. Transportation infrastructure needs to be improved. The government needs to invest in roads, railways, ports, etc. Improvement of infrastructure leads to a trade boost. With a large young population, a booming economy and huge untapped potential to become the global manufacturing hub, India is at a critical juncture in its growth trajectory.

GST is the most ambitious and remarkable indirect tax reform in India’s post-Independence history. Its objective is to levy a single national uniform tax across India on all goods and services. In 2017, Government of India and all state governments came together and decided to adopt Goods and Service TAX regime which centralized all indirect taxes into one i.e. GST. • State Goods and Services Tax (SGST) - The state government charges SGST on intra-state goods and services transactions. Subsequently, the revenue is collected by the state where the transactions in question were carried out. • Central Goods and Services Tax (CGST) - The central government charges CGST on the intra-state transaction of goods and services. • Integrated Goods and Services Tax (IGST) - This GST tax is charged on inter-state transactions of goods and services and applied on imports and exports. Note that both Centre and State share the revenue collected through IGST as per the GST bill. • Union Territory Goods and Services Tax (UGST) - This GST tax is levied by Union Territories and charged on all transactions carried out in any UT in India. It is similar in terms of payment rules on the GST platform and distribution. The tax percentage in India have been divided into four GST rates – 5%, 12%, 18%, and 28%. The GST council revises inclusions under these rates from time to time in order to ensure efficient pricing of different categories of product 5%- In terms of goods, this tax slab primarily comprises household necessities. 12% - The 12% GST tax rate applies primarily to processed food when speaking of goods 18% - The lion’s share of all goods and service 28% - As per the GST rates chart, nearly 200 items invite a tax of 28%. Of these, most are luxury items and sin goods. The industry has done an overwhelming effort to ensure the adoption of the ever-evolving GST law in the last 5 years. The industry was required to not only keep track of the changing tax provisions but was also required to upgrade to a technology-based tax ecosystem. In this respect, efforts made by the government in terms of timely issuing instructions, clarifications, and easing processes should be applauded too. In line with industry expectations, GST has had a positive impact on the manufacturing sector by removing the double tax (Excise Duty, VAT) effect of taxes resulting in the reduction of manufacturing costs. Before GST implementation, certain taxes paid by manufacturers on profits were non-creditable. At a dealer/ distributor level as well, credit of taxes paid on services (such as rent paid to warehouses, logistic costs, retail stores, etc.) were non-creditable. Being costs to the business, manufacturers and dealers generally had no option but to add such cost in the selling price of product. With the barrier on credits being removed, there has been a reduction in manufacturing costs.