The Centre on Wednesday notified the inflation target, keeping it unchanged at 4%, with a tolerance band of two percentage points on either side for the next five years ending March 31, 2031.
Assessments of the framework indicate that this target band has effectively anchored inflation expectations between 2016 and 2026. Even during major disruptions, including the pandemic and the ensuing volatility in prices, the government retained the framework, underscoring its commitment to macroeconomic stability and policy credibility.
In March 2021, the government reaffirmed the flexible inflation targeting (FIT) framework for FY22–FY26, continuing to use the Consumer Price Index (CPI) as the key benchmark. Since its introduction in 2016, the framework has aimed to balance price stability with the need to support economic growth, providing a structured approach to monetary policy.
Over the years, the inflation target has emerged as a crucial anchor for India’s macroeconomic environment. The adoption of the inflation-targeting regime has strengthened monetary policy credibility, reflected in improved inflation outcomes. Following the establishment of the Monetary Policy Committee in September 2016, average CPI inflation moderated to around 3.8% between October 2016 and February 2020, significantly lower than the 7.3% average recorded during January 2012 to September 2016.
The framework’s resilience was also evident during the COVID-19 period, when policymakers navigated sharp trade-offs between growth and inflation amid severe supply-side disruptions, while maintaining overall stability.
TOPICSinflationThis article was first uploaded on March twenty-five, twenty twenty-six, at twenty-nine minutes past eleven in the night.