Should India retain a 4% point inflation target or move to a range? Critically evaluate in light of the 2026 renewal.

India's six-member Monetary Policy Committee, created under Section 45ZB of the amended RBI Act, 1934, targets 4% CPI inflation with a ±2% band [2]. The Gazette notification of 25 March 2026 renewed this target until March 2031 and kept every feature of the framework [1]. A range target was debated, but on balance retaining the point target was the right choice.

Case for moving to a range (4–6% or 3–6%)

• Supply-shock exposure: food and fuel make up over half of the CPI basket, and a repo-rate hike cannot offset a failed monsoon or costly oil [2].
• Recent misses: inflation stayed within the band about three-fourths of the time in 2016–21, but only about two-thirds in 2021–26. COVID-19 and the Russia–Ukraine war were the main causes [2].
• Flexibility: a range openly accepts that forecasts are uncertain. Australia, Israel, Thailand and South Africa use range targets [3].

Case for retaining the 4% point target

• Track record: average inflation fell from 6.8% (2012–16) to 4.9%, and volatility fell from 2.3% to 1.5% [2].
• Credibility and expectations: the RBI Discussion Paper (2025) warns that a range could signal weaker commitment and leave MPC members reading the target differently [3]. Expectations anchored at 4% stop food shocks from spilling into wages and rents [2].
• Fiscal discipline: a softer target could weaken the government's restraint on borrowing [2].
• Flexibility already exists: the ±2% band absorbs shocks. Accountability applies only if inflation stays outside the band for three consecutive quarters [4].
• Global comparison: 4% already sits at the upper end of emerging-economy targets [1]. Many peers use 3–4% targets with narrower 1–1.5% bands [2].

Assessment

• A range would mostly relabel the flexibility the ±2% band already gives, while costing credibility.
• The real gaps lie elsewhere:
• managing food supply;
• MPC communication on whether a shock is temporary;
• models that include credit frictions and households that differ from one another, which the IMF found were missing before 2008 [5].

Overall, the 2026 renewal kept a framework that lowered inflation and made it steadier, though supply shocks remain its weak spot. The way forward is to keep the 4% anchor, communicate more clearly and coordinate on food and fuel supply, not to loosen the target. This approach serves the RBI Act's mandate of price stability with growth and supports SDG 8.