For the next five years, concluding on March 31, 2031, the Center announced the inflation target on Wednesday, maintaining it at 4% with a tolerance range of two percentage points on either side.
This target band has successfully anchored inflation expectations between 2016 and 2026, according to evaluations of the framework. The administration maintained the framework despite significant interruptions, such as the pandemic and the subsequent price volatility, demonstrating its dedication to macroeconomic stability and the legitimacy of its policies.
The government continued to use the Consumer Price Index (CPI) as the primary benchmark when it reiterated the flexible inflation targeting (FIT) framework for FY22–FY26 in March 2021. Since its launch in 2016, the framework has sought to provide an organized approach to monetary policy by striking a balance between the need to promote economic growth and price stability.
India’s macroeconomic situation now depends heavily on the inflation objective. Inflation results have improved since the implementation of the inflation-targeting system, which has increased the credibility of monetary policy. The average CPI inflation between October 2016 and February 2020 decreased to about 3.8% after the Monetary Policy Committee was established in September 2016. This was much less than the 7.3% average from January 2012 to September 2016.
The durability of the framework was also demonstrated during the COVID-19 pandemic, when policymakers managed to maintain general stability while negotiating difficult trade-offs between inflation and growth in the face of substantial supply-side disruptions.
