The Journey of Inflation Targeting in India

Authors

DOI:

https://doi.org/10.55763/ippr.2025.06.04.001

Abstract

It has been eight years since India adopted the inflation targeting (IT) framework for its monetary policy. In this paper we present a comprehensive analysis of the IT regime, addressing several critical aspects. We evaluate the performance of inflation over this period, and review the conduct of monetary policy during and after the Covid- 19 pandemic. We also identify key challenges that persist particularly in context of the Impossible Trilemma and highlight issues that may require further examination in order to improve the effectiveness of the IT framework in the future.

Keywords:

Inflation Targeting, Reserve Bank of India, Monetary Policy Committee, CPI Inflation, Impossible Trilemma

Downloads

Download data is not yet available.

Authors Bio

Radhika Pandey

Radhika Pandey was at the National Institute of Public Finance and Policy

Ila Patnaik, Aditya Birla Group of Companies

Ila Patnaik is the Chief Economist at the Aditya Birla Group of Companies

Rajeswari Sengupta, IGIDR

Rajeswari Sengupta is currently an Associate Professor of Economics at the Indira Gandhi Institute of Development Research (IGIDR) in Mumbai, India. 

References

Acharya, Viral V (2017) “Monetary Transmission in India: Why is it important and why hasn’t it worked well,” Reserve Bank of India Bulletin, 71 (12), 7–16.

Aggarwal, Nidhi, Sanchit Arora, and Rajeswari Sengupta (2022) “Capital account openness in India and a comparison with China: Then versus now,” Working Papers 2022-005, Indira Gandhi Institute of Development Research, Mumbai.

Aizenman, Joshua and Rajeswari Sengupta (2013) “Financial Trilemma in China and a Comparative Analysis with India,” Pacific Economic Review, 18 (2), 123–146.

Das, Sonali (2015) “Monetary Policy in India: Transmission to Bank Interest Rates,” IMF Working Papers 2015/129, International Monetary Fund, https://ideas.repec.org/p/ imf/imfwpa/2015-129.html.

Dua, Pami (2020) “Monetary policy framework in India,” Indian Economic Review, 55 (1), 117–154.

Eichengreen, Barry and Poonam Gupta (2024) “Inflation targeting in India: A further assessment,” Working Paper 174, National Council of Applied Economic Research.

Eichengreen, Barry, Poonam Gupta, and Rishabh Choudhary (2021) “Inflation targeting in India: An interim assessment,” in India Policy Forum, 17, 77–141, National Council of Applied Economic Research.

Garga, Vaishali, Aeimit Lakdawala, and Rajeswari Sengupta (2024) “Assessing Central Bank Commitment to Inflation Targeting in Emerging Economies: Evidence From India,” Working Papers 107, Wake Forest University, Economics Department.

Hutchison, Michael, Rajeswari Sengupta, and Nirvikar Singh (2012) “India’s Trilemma: Financial Liberalisation, Exchange Rates and Monetary Policy,” The World Economy, 35 (1), 3–18.

Reserve Bank of India (2018) “RBI Announces OMO Purchase of Government of India Dated Securities,” https://rbi.org.in/Scripts/BS_PressReleaseDisplay.aspx?prid=43842, May.

Lakdawala, Aeimit, Bhanu Pratap, and Rajeswari Sengupta (2023) “Impact of RBI’s monetary policy announcements on government bond yields: Evidence from the pandemic,” Indian Economic Review, 58, 261–291.

Mathur, Aakriti and Rajeswari Sengupta (2019) “Analysing monetary policy statements of the Reserve Bank of India,” IHEID Working Papers 08-2019, Economics Section, The Graduate Institute of International Studies.

Mistry, Percy (2007) “Report of the High Powered Expert Committee on Making Mumbai an International Financial Centre,” Technical report, Department of Economic Affairs, Ministry of Finance, India

Pandey, Radhika (2022) “How RBI’s inflation targeting regime has had a stabilising in- fluence on price rise in India,” ThePrint website: https://theprint.in/macrosutra/how-rbis-inflation-targeting-regime-has-had-a-stabilising-influence-on-price-rise-in-india/1195621/, 11.

Pandey, Radhika and Ila Patnaik (2017) “Legislative strategy for setting up an independent debt management agency,” NUJS L. Rev., 10, 395.

Patnaik, Ila (2003) “India’s policy stance on reserves and the currency,” working paper, Indian Council for Research on International Economic Relations.

Patnaik, Ila and Radhika Pandey (2020a) “Moving to Inflation Targeting,” Working Papers 20/316, National Institute of Public Finance and Policy, https://ideas.repec.org/p/ npf/wpaper/20-316.html.

(2020b) “Four years of the inflation targeting framework,” Working Papers 20/325, National Institute of Public Finance and Policy, https://ideas.repec.org/p/npf/ wpaper/20-325.html.

Patnaik, Ila and Rajeswari Sengupta (2022) “Analyzing India’s Exchange Rate Regime,” India Policy Forum, 18, 53–85.

Pattanaik, Sitikantha, GV Nadhanael, and Silu Muduli (2023) “Taming inflation by anchoring inflation expectations,” Economic and Political Weekly, 58 (22), 33–41.

Rajan, Raghuram (2009) “A Hundred Small Steps: Report of the Committee on Financial Sector Reforms,” Technical report, Planning Commission, Government of India.

RBI (2000) “Report of The Advisory Group on Transparency in Monetary and Financial Policies,” rbi committee report, Reserve Bank of India.

(2014) “Report of the Expert Committee to Revise and Strengthen the Monetary Policy Framework,” rbi committee report, Reserve Bank of India.

Reserve Bank of India (2020a) “Statement on Developmental and Regulatory Policies,” RBI Website: https://www.rbi.org.in/commonperson/English/Scripts/PressReleases. aspx?Id=3193, 03.

(2020b) “Minutes of the Monetary Policy Committee Meeting May 20 to 22, 2020,” RBI Website: https://rbi.org.in/Scripts/BS_PressReleaseDisplay.aspx? prid=49909, 06.

(2021a) “Minutes of the Monetary Policy Committee meeting, August 4 to 6, 2021,” RBI Website: https://rbi.org.in/Scripts/BS_PressReleaseDisplay.aspx? prid=52088, 08.

(2021b) “Monetary Policy Statement, 2021-22: Resolution of the Monetary Pol- icy Committee (MPC) October 6-8, 2021,” 10, https://rbi.org.in/Scripts/BS_ PressReleaseDisplay.aspx?prid=52366

Schmidt-Hebbel, Klaus and Mart´ın Carrasco (2016) “The past and future of inflation targeting: implications for emerging-market and developing economies,” Monetary policy in India: A modern macroeconomic perspective, 583–622.

Sengupta, Rajeswari (2016) The Impossible Trinity: Where Does India Stand? in , International Trade and International Finance (29): Springer India, 511-523.

Sengupta, Rajeswari and Abhijit Sen Gupta (2019) “Alternate instruments to manage the capital flow conundrum: A study of selected Asian economies,” Pacific Economic Review, 24 (2), 241–268.

Shah, Ajay (2023) “The journey of Indian finance,” Working Papers 25, xKDR, https:// ideas.repec.org/p/anf/wpaper/25.html.

Singh, Bhupal (2011) “How Asymmetric is the Monetary Policy Transmission to Financial Markets in India?” Reserve Bank of India Occasional Papers, 32.

Tarapore (2006) “Report of the Committee on Fuller Capital Account Convertibility,” Technical report, Reserve Bank of India.

Taylor, Stephen J. (1987) “Forecasting the volatility of currency exchange rates,” International Journal of Forecasting, 3 (1), 159–170, https://doi.org/10.1016/0169-2070(87)90085-9, Special Issue on Exchange Rate Forecasting.

Published

2025-10-01