Evaluate the performance of the flexible inflation targeting framework in India since 2016. Should the 4% ± 2% target be revisited?

In 2016, amendments to the RBI Act brought in flexible inflation targeting (FIT). The Centre sets the target (Section 45ZA), and a six-member Monetary Policy Committee (Section 45ZB) sets the repo rate to meet it. A decade on, FIT's record is creditable but uneven. The case is for refining the 4% ± 2% target, not discarding it.

Achievements

• Lower inflation: Average CPI inflation fell from 6.8% before FIT (2012–16) to 4.9% after it [1].
• Greater stability: Volatility of headline inflation fell from 2.3% to about 1.2–1.6% [1].
• Transparency: MPC votes and minutes are published. The 62nd meeting's minutes came out within two weeks [4].
• Accountability: Under Section 45ZN, a breach for three straight quarters forces the RBI to explain itself in writing to the government. This was first triggered in 2022 [3].

Shortcomings

• Breaches: Inflation stayed above 6% for about nine quarters in 2020–22, driven by the pandemic and the Russia–Ukraine war [1].
• Upward drift: Average inflation rose from 4.4% (2016–21) to 5.4% (2021–25) [1]. FY27 CPI is projected at 5.0%, peaking at 5.9% in Q3, just under the ceiling [4].
• Food shocks: Food has a high weight in the CPI basket [1], and rate hikes cannot fix supply-driven price rises. They only slow growth and hurt MSMEs.

Should the target be revisited?

• Case for change: The RBI's 2025 review asked whether to target headline or core inflation, whether 4% suits a fast-growing economy, and whether the band should change [1].
• Case against:
• The Centre renewed 4% ± 2% until March 2031 by a Gazette notification of 25 March 2026 [2].
• Raising the target would loosen inflation expectations just after they have settled.
• The 2–6% band already gives room to absorb shocks.

• Headline CPI captures the food inflation that hurts poor households most.

• Verdict: Keep the target level and refine how it works:

• update CPI weights to current spending patterns;
• report core inflation alongside headline;
• have the Centre tackle food prices through buffer stocks, trade policy and storage.

Overall, FIT has brought inflation down and made policy more credible, but supply shocks have tested it. Better fiscal–monetary coordination, not a softer target, would complete the framework. That keeps the price stability the RBI Act intends and protects the purchasing power of the poorest.