Inventory Carrying Cost in India: Build Your Own Rate

Inventory carrying cost is everything you spend in a year to hold stock: interest on the money tied up in it, storage, handling and insurance, and losses from damage, expiry or theft. Divide it by average stock value and multiply by 100 to get the carrying cost rate.

Carrying cost rate (%) = annual carrying cost ÷ average stock value × 100

Annual carrying cost has four lines:

• Capital cost: interest on loans or cash credit (a bank overdraft-style limit secured on stock) funding the stock, or the return your own cash could have earned.
• Storage cost: godown or warehouse rent, power, racking and security.
• Service cost: insurance, handling labour and stock-control software.
• Risk cost: shrinkage (stock lost to theft, damage or counting errors), obsolescence (stock that can no longer be sold) and expiry.

Average stock value is the mean of your stock at cost at each month end. Use twelve month-end values rather than opening plus closing divided by two, because stock that swings with seasons makes the two-point average misleading.

A copied range is a poor guide because it cannot see your lender or your storage.

Two of the four cost lines are set by facts about your own business: what your bank charges, and how much stock you hold per square foot of space you pay for. Those two swing the result more than any industry average. In the worked example below, identical stock in the same city gives 18.1% or 29.2%, depending only on how densely the stock is stored.

Our recommendation is to use a published range only as a sanity check after you have built your own.

Capital cost is the floor under your rate: at State Bank of India (SBI), the External Benchmark Lending Rate (EBLR) is 8.15% plus a credit risk premium and a further spread from 15 October 2026, up from 7.90%. Your sanctioned rate will be higher than the benchmark.

The context, as of October 2026:

• The Reserve Bank of India's policy repo rate was raised by 25 basis points to 5.50% on 7 October 2026. A basis point is 0.01 percentage point.
• SBI's Marginal Cost of Funds based Lending Rate (MCLR) was 8.60% for six months and 8.70% for one year, effective 15 September 2026.

By our arithmetic, a 0.25 percentage point rise on ₹1 crore of average stock funded at EBLR-linked rates adds ₹1,00,00,000 × 0.0025 = ₹25,000 a year. If your loan is linked to the EBLR, it rises with the benchmark. MCLR-linked loans change at their next reset date. Check your sanction letter.

If the stock is funded from your own cash, we would still charge it at the rate you would pay to borrow. That cash could repay the loan or fund purchases.

Rent alone adds about 1% to 17% of stock value, and the density of your stock explains more of that range than the city does. The formula is annual rent per square foot ÷ rupees of stock (at cost) held per square foot.

Knight Frank's India Warehousing Market Report (2026 edition, covering 2025) gives weighted average transacted rents per square foot per month: Pune ₹28.0, Mumbai ₹25.2, Chennai and Kolkata ₹25.0, Bengaluru ₹23.2, Delhi NCR ₹21.9, Hyderabad ₹21.5 and Ahmedabad ₹18.6. We multiplied each by 12 and divided by four levels of stock density. This is our model, not an official figure.

Add power, racking and security from your own ledgers; they are not in this model.

Read across a row, not down a column. In Bengaluru, the 13.9% for thinly stocked space drops to 1.1% for dense space. Rent reaches 5% of stock value in Bengaluru at ₹5,568 of stock per square foot (₹278.4 ÷ 0.05).

These are rents for large, modern warehouses. A small godown in your town may rent for more or less per square foot, so replace the rent in the formula with the figure on your own rent receipt. To find your density, divide average stock value by the square feet you rent.

Storage, handling and loss costs are hidden because they are charged to profit and loss across rent, power and wage lines, and interest sits under finance charges, so none of them appears against the stock. Accounting Standard 2 (Inventories) excludes storage costs from the cost of inventory unless they are necessary in production before a further stage.

Risk cost also carries a tax effect. Under Section 17(5)(h) of the Central Goods and Services Tax (CGST) Act, input tax credit (ITC) is blocked for "goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples". If you bought stock with 18% GST and took full credit, writing off ₹1,50,000 of it costs ₹1,50,000 plus ₹27,000 of reversed credit. The same article notes the computation rules are unclear in some cases, such as capital goods lost in a fire. Ask your chartered accountant how to compute partial cases.

For the loss lines, see our guides on inventory shrinkage and slow moving inventory.

Fill one row per cost line from last year's ledgers, then divide the total by average stock value. A row is only done when it ties to a ledger entry.

Worked example (our model, with assumed inputs). A Bengaluru distributor holds ₹1,00,00,000 of stock on average, at ₹10,000 per square foot, so it rents 1,000 square feet.

Rate = ₹18,05,400 ÷ ₹1,00,00,000 × 100 = 18.1%. Capital is 58% of the total. Hold the same stock at ₹2,000 per square foot (5,000 square feet) and storage (rent only) becomes ₹13,92,000, so the total is ₹29,19,000 and the rate is 29.2%.

Divide the rate by 12 to get the monthly cost, then multiply by the months an item sits. At 18.1%, holding costs about 1.5% of cost per month, so six months of cover adds about 9% to an item's cost. At 29.2% it adds about 14.6%.

Compare that with the item's gross margin. If six months of cover adds 9% and the item earns 12% gross margin, three points of margin remain. If the cost of holding is higher than the margin, the item loses money for every extra month it sits. We recommend sorting items by months of cover and reviewing anything where the holding cost has passed half the margin.

For order sizing, the economic order quantity uses this rate directly. For the months-of-cover figure, see how to calculate inventory turnover days.

We give you the two numbers the worksheet starts with: how much stock you hold, and what each unit really cost. Arka Inventory is cloud software built natively on Salesforce, with the following relevant to this calculation.

• Stock across warehouses: see quantities in every warehouse and store in one view, with stock on order and expected arrival. Multiple warehouses are on every plan from Basic.
• Inventory alerts: low-stock and back-order alerts as they happen, from the Basic plan.
• Landed cost: accounts for each unit at its true landed cost, including shipping, duties, taxes and fees, instead of the purchase price alone. It is on our Enterprise plan.
• Lot, batch, expiry and serial tracking: shows what is close to expiry, which feeds the risk line. Also on our Enterprise plan.
• Tally integration: our published integrations include Tally, QuickBooks Online and Salesforce.

We offer a 15-day free trial with full access and no credit card. As of October 2026, Basic costs $199 a month with 1 user and Advance costs $499 a month with 2 users, both billed yearly. Extra users cost $42 a month on Basic and $52 on Advance. Enterprise is custom priced and includes landed cost and lot and serial tracking (pricing). To see how it fits your warehouses, talk to our sales team.