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Is India Ready for Inflation Targeting?

Author

Listed:
  • Sen Gupta Abhijit

    (Economist, India Resident Mission, Asian Development Bank, New Delhi, India)

  • Sengupta Rajeswari

    (Assistant Professor, Department of Economics, Indira Gandhi Institute for Development Research, Mumbai, India)

Abstract

In this paper we analyze the extent to which the current macroeconomic environment in India is suitable for implementation of inflation targeting as a monetary policy strategy, in light of the recommendation of the Urjit Patel Committee Report. Our results indicate that historically the Reserve Bank of India has given more importance to inflation compared to output growth and exchange rate changes in its monetary policy conduct and that in recent times there has been an increased emphasis on monetary independence thereby comfortably placing the RBI on a path to move towards inflation targeting. However we also find factors, that are traditionally outside the control of monetary policy, do exert a strong impact on aggregate prices in India thereby making the choice of nominal anchor a tricky one. Furthermore, the success of monetary policy in containing inflation is found to be crucially contingent on an appropriate fiscal policy as well.

Suggested Citation

  • Sen Gupta Abhijit & Sengupta Rajeswari, 2016. "Is India Ready for Inflation Targeting?," Global Economy Journal, De Gruyter, vol. 16(3), pages 479-509.
    • Handle: RePEc:bpj:glecon:v:16:y:2016:i:3:p:479-509:n:1002
    DOI: 10.1515/gej-2015-0049
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    Cited by:

    1. Aeimit Lakdawala & Rajeswari Sengupta, 2025. "Measuring Monetary Policy Shocks in Emerging Economies: Evidence from India," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 57(2-3), pages 407-437, March.
    2. Behera, Harendra & Wahi, Garima & Kapur, Muneesh, 2018. "Phillips curve relationship in an emerging economy: Evidence from India," Economic Analysis and Policy, Elsevier, vol. 59(C), pages 116-126.
    3. Christian P Pinshi, 2022. "Ciblage des prévisions d'inflation : Un nouveau cadre pour la politique monétaire ?," Working Papers hal-03548273, HAL.
    4. Aeimit Lakdawala & Rajeswari Sengupta, 2021. "Measuring monetary policy shocks in India," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2021-021, Indira Gandhi Institute of Development Research, Mumbai, India.
    5. Harendra Behera & Garima Wahi & Muneesh Kapur, 2017. "Phillips Curve Relationship in India: Evidence from State-Level Analysis," Working Papers id:11973, eSocialSciences.
    6. Prachi Mishra & Peter Montiel & Rajeswari Sengupta, 2016. "Monetary transmission in developing countries: Evidence from India," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2016-008, Indira Gandhi Institute of Development Research, Mumbai, India.

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