In May 2022, India’s retail inflation rate rose above the upper limit of the target range set by the Reserve Bank of India in 2015, to reach 7.79 per cent. In recent years, India’s retail inflation rate had been successfully kept within the target range of 2–6 per cent as the economy grew steadily. Everything changed in March 2020, however, when the outbreak of the COVID-19 pandemic disrupted the economy of all countries around the world. In February 2022, two years after the outbreak of the pandemic, Russia invaded Ukraine, which further disrupted the global supply chains. As a result, all major economies had to closely manage their monetary policies with contractionary measures and use policy rates to contain inflation. Eventually, by March 2023, the inflation rate in India dropped to 5.66 per cent, within the target range. The Reserve Bank of India’s governor had paused the rate hike in April after noticing that high interest rates were adversely affecting investments and growth prospects in the Indian economy. He knew that he had to continue using contractionary monetary policies but could not lower the policy repo rate, when inflation across major economies such as the United States and the United Kingdom were showing no signs of calming. He could choose to increase or keep the repo rate unchanged. Alternatively, he could choose a contractionary measure such as quantitative tightening.
India’s airline industry was an oligopoly, with six major players in the market. IndiGo, launched in 2006, had become India's largest airline and a dominant player, after having taken advantage of market conditions, including a rise in per capita income that led to increased demand for air travel. However, in 2018, after a decade of consistent profitability, IndiGo was experiencing a decline in profits that was affecting its share price. The airline’s management needed to consider how the company could sustain its market-leading position over the long term and even increase profits, while accepting the minimal control it and its competitors had over ticket prices, amid an atmosphere of rising costs for aviation fuel and personnel costs.
The passenger car industry in India has witnessed intense competition since the Indian economy’s liberalization in the early 1990s. Although Maruti Suzuki India Limited has been the most dominant player for the last three decades — with many Indians using “Maruti” as a synonym for “car” — it has been unable to raise the prices of its cars over the last ten years due to a price war among rivals. Though Maruti has been a profitable company, rising input costs and poor price maneuverability are making it very challenging for the firm to remain profitable in the future. In 2014, Maruti is contemplating a major investment in a new plant. The chairman of Maruti must determine whether investing in the new plant would reduce costs significantly and help the company remain profitable.