Simply compounding.

"Monetary Policy Committee of the Reserve Bank of India (RBI) on Thursday (yesterday) unanimously decided to keep policy repo rate unchanged at 6.5 percent for the third time in a row but revised retail inflation projection for the current fiscal to 5.4 percent from its earlier estimate of 5.1 percent, citing upturn in food inflation and uncertainties in global oil prices." DH. "The Indian economy is likely to grow at 6.5 percent in the financial year 2023-24, said RBI Governor Shaktikanta Das." ET. "The RBI will withdraw nearly one trillion rupees ($12.07 billion) from the banking system through a temporary increase in the amount of funds lenders set aside with the central bank, as it tries to keep a lid on inflation." Reuters. "Liquidity surplus in India's banking system has averaged around 2.5 trillion rupees in August, up from 1.6 trillion rupees in July, pushing down overnight borrowing and lending rates." "To control the price rise, the government in 2016 gave a mandate to the RBI to keep retail inflation at 4 percent with a margin of 2 percent on either side for a five-year period ending March 2021." ET. This mandate was extended to 31 March 2026. Though the mandate is to target a retail inflation of 4% the RBI seems to be targeting the upper limit of 6%. Inflation means rising prices and higher prices mean higher tax in government pockets. "India collected Rs 1.65 lakh crore (Rs 1.65 trillion) Goods and Services Tax (GST) for the month of July, registering a growth of 11% from a year earlier." ET. India's consumer price index (CPI) increased by 4.6% in October 2019 and has been consistently higher than 4% since then, reaching a high of 7.8% in April 2022. rateinflation.com. Inflation is compounding. Politicians lie when they claim that CPI inflation of 4.81% in June 2023, BT, means that prices are coming down because this rise was on top of a 7% rise in prices in June 2022, which was on top of a 6.3% rise in June 2021 and another 6.3% rise in June 2020. Which means that an article which cost Rs 100 in May 2020 now costs Rs 126.72. If GST on that article is levied at 12%, the government would have got Rs 12 in May 2020 but, with the cost having risen to Rs 126.72, the government will now pocket Rs 15.20 in GST on the same article. No wonder then that the government's debt has fallen. "The Central Government's debt was Rs 155.6 lakh crore (Rs 155.6 trillion) as on March 31, 2023. It has reduced from 61.5 percent of GDP in 2020-21 to 57.1 percent of GDP in FY 2022-23," Minister of State for Finance Pankaj Chaudhary said." ET. That is because Nominal GDP, or GDP at current prices, grew at 16.1% to Rs 272.41 trillion in 2022-23, because of inflation, while Real GDP, or GDP at constant prices, is estimated to have grown by 7.2% to Rs 160.06 trillion. pib.gov.in. High prices mean that ordinary Indians are having to reduce their consumption, according to the RBI, ET, while government employees are to see a 3% rise in Dearness Allowance to 45%. BT. Compounding inflation and compounding Dearness Allowance. No wonder they can afford to smile.