Analysis of effect of inflation on savings India: Real rates give an accurate, historical picture of how an investment is performing. A real rate of return is the annual percentage return realized on an investment, which is adjusted for changes in prices due to inflation. The historical figures for past 10 years from 2009 to 2018 related to inflation and savings interest rate (National Saving Certificate- NSC) having sovereign guarantee and tax benefits was considered for analysis. The real rates (adjusted for Inflation) were negative starting from year 2010 to 2013 and in a positive territory 2014 onwards till 2018. Anyone who could increase their income by 3% y-o-y with increase in expenses @ 13% y- o-y could beat the benchmark index returns.

1. Analysis of effect of inflation
on savings of individuals India:
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2. Introduction
• Introduction:
• Real rates give an accurate, historical picture of how an
investment is performing.
• Definition:
• A real rate of return is the annual percentage return realized
on an investment, which is adjusted for changes in prices due
to inflation.
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3. Analysis:
• The historical figures for past 10 years from 2009 to 2018 related to
inflation and savings interest rate (National Saving Certificate-
NSC) having sovereign guarantee and tax benefits was
considered for analysis.considered for analysis.
• Base case scenario data:
– Income increase y-o-y - 6%
– Expenses increase y-o-y – 10%
– Starting Expenses – Rs.50
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4. Data for analysis
DATA
Year
Real rates (Adjusted for
Inflation)
Average Inflation
NSC
Interest rates
Index Returns
2009 -2.83% 10.83% 8.00% 46.00%
2010 -4.11% 12.11% 8.00% 25.30%
2011 -0.47% 8.87% 8.40% -15.60%
2012 -0.70% 9.30% 8.60% 12.98%
2013 -2.42% 10.92% 8.50% 6.40%
2014 1.63% 6.37% 8.00% 34.10%
2015 2.12% 5.88% 8.00% -10.50%2015 2.12% 5.88% 8.00% -10.50%
2016 3.03% 4.97% 8.00% 7.10%
2017 5.51% 2.49% 8.00% 23.10%
2018 3.47% 4.53% 8.00% 4.50%
Base case - Income increase y-o-y 6%
Base case - Expenses increase y-o-y 10%
Base case - Starting Expenses 50
References :
1. Inflation figures: https://www.inflation.eu/inflation-rates/india/historic-inflation/cpi-inflation-india.aspx
2. NSC interest rates: http://dailytools.in/GovernmentSavingSchemes/Article/national-savings-certificate-nsc-interest-
rates
3. Index Returns: https://in.investing.com/indices/sensex-historical-data
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5. Analysis base case scenario
INDIA - REAL RETURNS FOR COMMON MAN
Year
Yearly
Salary
Expenses Savings
Nominal
Return
Real return
(adjusted for
Inflation)
Nominal
Saving
Real
Saving
Gain / Loss
due to
inflation
Cumm Real
Saving
2009 100 50.00 50.00 4.00 -1.42 54.00 52.59 -1.42 52.59
2010 106 55.00 51.00 4.08 -2.10 55.08 52.98 -2.10 105.572010 106 55.00 51.00 4.08 -2.10 55.08 52.98 -2.10 105.57
2011 112 60.50 51.86 4.15 -0.24 56.01 55.77 -0.24 161.33
2012 119 66.55 52.55 4.41 -0.37 56.97 56.60 -0.37 217.93
2013 126 73.21 53.04 4.56 -1.28 57.60 56.32 -1.28 274.25
2014 134 80.53 53.30 4.53 0.87 57.83 58.70 0.87 332.95
2015 142 88.58 53.27 4.26 1.13 57.54 58.67 1.13 391.61
2016 150 97.44 52.93 4.23 1.60 57.16 58.77 1.60 450.38
2017 159 107.18 52.21 4.18 2.88 56.38 59.26 2.88 509.64
2018 169 117.90 51.05 4.08 1.77 55.13 56.91 1.77 566.54
CAGR - Savings 26.8%
CAGR - Index 14.8%
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6. Scenario Analysis
SCENARIO ANALYSIS
Base Case Income increase y-o-y (%)
26.8% 0% 1% 2% 3% 4% 5% 6%
y(%)
8%
18.84% 20.75% 22.50% 24.14% 25.68% 27.14% 28.53%
IncreaseinExpensesy-o-y(%)
9%
17.16% 19.31% 21.25% 23.03% 24.69% 26.25% 27.73%
10%
15.12% 17.60% 19.79% 21.76% 23.57% 25.26% 26.83%
11%
12.56% 15.52% 18.05% 20.28% 22.29% 24.12% 25.83%
12%
9.11% 12.89% 15.93% 18.51% 20.78% 22.82% 24.68%
13%
3.96% 9.35% 13.24% 16.36% 18.99% 21.29% 23.36%
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7. CONCLUSION
• Conclusion:
• The real rates (adjusted for Inflation) were negative starting
from year 2010 to 2013 and in a positive territory 2014 onwardsfrom year 2010 to 2013 and in a positive territory 2014 onwards
till 2018.
• Anyone who could increase their income by 3% y-o-y with
increase in expenses @ 13% y-o-y could beat the benchmark
index returns.
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