"The shift from demand management to inflation targeting has redistributed the burden of macroeconomic adjustment towards workers." Critically examine this in the Indian context.

Since 2016, India has moved from discretionary demand management to Flexible Inflation Targeting (FIT), with a 4% CPI target and a ±2% band [1]. Critics say workers now absorb the cost of stabilisation through lost jobs and weaker wages. The evidence supports this claim only partly.

Arguments supporting the claim

• Supply shocks met with demand tools: food has a 45.9% weight in India's CPI [1]. A higher repo rate cannot raise farm output; it mainly cuts demand, hiring and workers' bargaining power.
• 2022 episode: inflation peaked at 7.8%, and the MPC had to explain the target miss to the government [1]. RBI itself credits government supply-side measures and softer global commodity prices, not rates alone, for the decline [1].
• Falling labour share: the global labour income share fell from 53% (2014) to 52.4% (2024) [2].
• Costs of austerity: IMF research found fiscal multipliers were much higher than forecasters assumed during post-2008 consolidation in advanced economies [3]. Cutting spending in a slump therefore costs output and jobs.
• Output cost not measured: the Urjit Patel Committee (2014) planned a glide path to limit output losses, yet no sacrifice ratio has been published [1].

Arguments against the claim

• Low inflation is pro-poor: average CPI inflation fell from 7.4% (2012–16) to 4.4% (2016–21) [1]. Inflation acts as a regressive tax on informal workers whose wages are not indexed to prices.
• Anchored expectations: prices are less volatile and inflation expectations are better anchored [1]. This reduces the need for sharp, job-destroying rate hikes later.
• Correlation is not causation: the labour share has been falling since the 1980s, long before FIT. The ILO attributes it to technology, market structures and globalisation [2].
• Built-in flexibility: the ±2% band lets RBI tolerate supply shocks, and most respondents to RBI's 2025 review backed keeping it [1].

Overall, FIT has delivered price stability, but during supply shocks the cost of adjustment falls disproportionately on labour. RBI's 2025 framework review [1] is a chance to keep the 4% anchor while adding food supply-chain reforms, counter-cyclical fiscal space and published output-cost estimates. That would let price stability support SDG 8 (decent work) rather than come at its expense.