Critically evaluate India's flexible inflation targeting regime a decade after its adoption, in light of recent global oil price volatility.

India adopted flexible inflation targeting (FIT) in 2016 by amending the RBI Act, 1934, creating a statutory six-member Monetary Policy Committee under Section 45ZB to hold CPI inflation at 4% ± 2% [3]. A decade on, its disinflationary record is strong, but renewed food-and-fuel pressure amid global crude volatility tests its resilience to supply shocks.

Merits demonstrated over the decade

• Lower, steadier inflation: average inflation fell to 4.9% post-adoption from 6.8% earlier, with volatility (standard deviation) narrowing from 2.3% to 1.5% [2].
• Anchored expectations: CPI stayed below the 4% target for 16 consecutive months before edging up to 4.4% in June 2026 [1].
• Rule-based, transparent institution: MPC decisions are binding on the RBI, with minutes published 14 days later — a rare accountability mechanism among Indian regulators [3][1].
• Built-in flexibility: the ±2% band allowed the MPC to unanimously hold the repo rate at 5.25% in August 2026 despite rising headline inflation, since core inflation remained benign [1].

Limitations exposed by oil price volatility

• Headline targeting captures food and fuel, which form over half the consumption basket [2]; imported crude shocks thus force a monetary response to inflation the repo rate cannot cure.
• FY2026-27 inflation is projected at 5.0%, driven mainly by food and fuel rather than demand [1] — tightening here risks needlessly sacrificing growth.
• Communication risk: the hawkish tilt of the August 2026 minutes, relative to the resolution's tone, unsettled bond markets and hardened G-sec yields, raising the government's borrowing cost [4].
• Fuel taxation and buffer-stock management remain fiscal levers outside MPC control, limiting coordination.

FIT has demonstrably delivered price stability and institutional credibility; its strain lies in external supply shocks, not in design failure. The way forward is calibrated — retain headline targeting for credibility, while strengthening fiscal-monetary coordination, energy-import diversification and clearer forward guidance, so that price stability continues to underwrite sustainable growth.