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Assessing inflation targeting in India

Author

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  • Ashima Goyal

    (Indira Gandhi Institute of Development Research)

Abstract

The literature expects it to take a long to establish inflation targeting (IT) in emerging markets, but the Indian experience suggests that suitable adaption of IT to domestic structure and shocks as well as circumstances can fast-track the process while reducing growth sacrifice. The paper provides evidence and possible further refinements. Key features that worked well were flexible implementation, unlike the pre-pandemic over-strictness; counter-cyclical smoothing of shocks with real rates near equilibrium; good fiscal-monetary coordination with independence in rate-setting; use of complementary prudential regulation and liquidity management; establishing adequate independence from global cycles. The IT framework needs to preserve these features. Use of better inflation data, more transparency and accountability in inflation forecasts and in liquidity management would improve outcomes.

Suggested Citation

  • Ashima Goyal, 2025. "Assessing inflation targeting in India," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2025-018, Indira Gandhi Institute of Development Research, Mumbai, India.
    • Handle: RePEc:ind:igiwpp:2025-018
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    File URL: http://www.igidr.ac.in/pdf/publication/WP-2025-018.pdf
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    References listed on IDEAS

    as
    1. Banerjee, Krittika & Goyal, Ashima, 2021. "Behavioural​ equilibrium real exchange rates and misalignments: Evidence from large emerging markets," Economic Analysis and Policy, Elsevier, vol. 70(C), pages 414-436.
    2. Ṣebnem Kalemli-Özcan & Liliana Varela, 2021. "Five Facts about the UIP Premium," NBER Working Papers 28923, National Bureau of Economic Research, Inc.
    3. Mishra, Ankita & Mishra, Vinod, 2012. "Inflation targeting in India: A comparison with the multiple indicator approach," Journal of Asian Economics, Elsevier, vol. 23(1), pages 86-98.
    4. Svensson, Lars E. O., 2000. "Open-economy inflation targeting," Journal of International Economics, Elsevier, vol. 50(1), pages 155-183, February.
    5. Buffie, Edward F. & Airaudo, M. & Zanna, Felipe, 2018. "Inflation targeting and exchange rate management in less developed countries," Journal of International Money and Finance, Elsevier, vol. 81(C), pages 159-184.
    Full references (including those not matched with items on IDEAS)

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    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
    • E65 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Studies of Particular Policy Episodes

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