Critically examine whether flexible inflation targeting has achieved price stability in India without disproportionate output/employment costs.

Flexible Inflation Targeting (FIT), statutory since the Finance Act, 2016, makes price stability the RBI's primary objective, with a 4% CPI target and a 2–6% tolerance band [1][2]. A decade on, FIT has delivered credibility, but its real-economy costs remain contested.

Where FIT has worked

• A clear nominal anchor: the amended RBI Act, 1934 replaced the discretionary multiple-indicator approach with a single notified CPI target, reducing policy ambiguity [2].
• Accountability by design: a six-member MPC (three RBI, three external), published resolutions, and a mandatory report to the Government if average inflation breaches the band for three consecutive quarters [1][2].
• Demonstrated credibility: the Centre retained the 4% target and band in successive reviews, most recently on 25 March 2026 for 2026–31; the RBI itself argues that raising the target would be read as dilution and weaken policy credibility [1][3].

Where the costs bite

• Supply-driven inflation: food and fuel exceed 50% of India's consumption basket and move with monsoon and global commodity shocks that do not respond to the repo rate [3]. Tightening then squeezes interest-sensitive demand — investment, construction, MSME credit — for limited disinflation.
• Weak inflation–output trade-off: critics of the decade-long record argue India's Phillips curve is empirically flat, so demand compression buys modest price gains at a heavier output and employment cost.
• Incomplete transmission: repo changes pass through unevenly to lending rates in a segmented credit market, concentrating the burden on smaller borrowers.
• Partial expectation anchoring: households' inflation expectations remain stickier than the theory of the framework assumes, blunting its central channel.

FIT's record is therefore asymmetric — strong on institutional credibility, weaker where inflation is structural rather than cyclical. The way forward is not abandoning the target but complementing it: buffer-stock and agricultural marketing reform, better transmission, and fiscal–monetary coordination, so that price stability reinforces rather than trades off against growth and employment.