Inflation debate must consider downsides of alternative frameworks

To be fair, the RBI or the MPC on its own cannot change the target or stop taking into account one part of the consumer basket without appropriate amendment to the RBI Act

An interesting and lively debate, including on this page, has ensued on India’s inflation targeting, after this year’s Economic Survey in July suggested that the framework should consider targeting inflation excluding food. Economists in the finance ministry reasoned that higher food prices are often supply-induced rather than being demand-driven. Further, short-run monetary policy tools are meant to contain price pressures emanating from excess aggregate demand growth. Several commentators have argued that this debate is settled and the Reserve Bank of India (RBI) must continue with the current framework because it has served India well. In this regard,