Tracing the Trajectory, Determinants, and Forecasts of Inflation in India: A Comprehensive Econometric and Historical Analysis

This study provides a comprehensive historical and econometric analysis of inflation in India from 1960 to the present, examining its key determinants, evolving trajectory, and future outlook. The research traces India's inflation through distinct macroeconomic epochs, highlighting a past characterised by extreme volatility driven by agricultural supply constraints, geopolitical energy shocks, and periods of fiscal dominance, which culminated in an inflationary peak of nearly 29% in 1974. An exploration of the theoretical debate between monetarist and structuralist paradigms concludes that Indian inflation is a complex hybrid phenomenon, shaped by monetary policy yet, in the short term, dominated by deep-seated supply-side bottlenecks, particularly in food and energy. The analysis identifies a critical inflation threshold of 5.5-6.0%, above which price increases become detrimental to long-term economic growth. A pivotal moment in this history was the 2016 adoption of a Flexible Inflation Targeting (FIT) framework, which successfully anchored expectations and moderated price increases, marking a significant structural break from the past. Using an AutoRegressive Integrated Moving Average (ARIMA) model, the study generates a statistical forecast which, reflecting historical inertia, projects a reversion towards a high long-term average. This result starkly contrasts with institutional forecasts that expect inflation to remain anchored at the 4% policy target, underscoring the profound impact of the FIT regime. The analysis concludes that while the modern monetary policy framework has fundamentally altered India's inflation dynamics, sustained price stability hinges on complementing central bank credibility with sustained fiscal discipline and aggressive supply-side reforms to address persistent structural vulnerabilities.