Former external MPC member Chetan Ghate, professor of economics at the Indian Statistical Institute (ISI), has provided detailed analysis of India's inflation-targeting regime performance over the past decade. As reported by Business Standard, Ghate noted that inflation targeting has worked well in India with flexible inflation targeting (FIT) establishing a credible nominal anchor. He highlighted that financial markets understand the MPC's objective better and FIT has led to a credibility premium. According to Ghate's analysis, during 2016-2020, the first MPC average inflation was 4.3 per cent, during 2020-2024, the second MPC average inflation was 5.7 per cent, and during October 2024–August 2026, average inflation was 3.2 per cent. This represents a significant improvement from the high inflation years of 2010-2013, with inflation management showing tremendous improvement overall. Raj notes that the retail-inflation rate averaged close to 4.8 per cent during the FIT period up to August 2025, and even the core-inflation rate was close to 4.9 per cent, suggesting that the current 4 per cent target may be appropriate given historical performance.
Former Reserve Bank of India Monetary Policy Committee member Jayanth Varma has advocated for greater transparency in inflation targeting mechanisms. According to reports from Business Standard, Varma, who now serves as a Distinguished Professor at the Dhirubhai Ambani University, Gandhinagar, believes that best practices require publication of the RBI's letter explaining why inflation targets were missed. In a recent email interview with Finance Interviews, Varma emphasized that global best practices would also require publication of the letter that the Reserve Bank of India writes to the government when there is a failure to meet the inflation target. This recommendation comes as the central bank continues to navigate inflation pressures within its flexible inflation targeting framework. Former RBI executive director Janak Raj has specifically called for the government to make public the RBI's 2022 inflation failure report, which was sent to the government in November 2022 but not made public.
Ghate has proposed a significant structural change to improve the Monetary Policy Committee's effectiveness. According to Business Standard, he suggests that external members in the MPC should be appointed full-time members for the duration of their terms, as at the Bank of England. He explained that given the increasing complexity of the world economy, this allows independent members to fully devote their time to a complicated task. Ghate also emphasized the need for independent members to make projections on inflation and other variables using their own forecasting models to provide more diverse perspectives and reduce potential group-think among internal members. These recommendations come as the MPC continues to balance its dual mandate of price stability and growth objectives. Raj has suggested that the weighting of food in the consumption basket is expected to decline further as income levels rise, which could provide ground to consider a lower target for headline inflation.
The expert recommendations for enhanced transparency and full-time MPC membership come as the RBI faces ongoing challenges in meeting its inflation targets. According to Business Standard, Ghate noted that sizeable fiscal deficits can contribute to demand pressures, which may support growth but lead to over-heating. He emphasized that inflation targeting requires strong monetary-fiscal coordination, which has also improved. The flexible inflation targeting approach continues to be a key component of India's monetary policy framework as the RBI balances growth objectives with price stability requirements. Raj highlights that the current FIT framework provides enough flexibility with a large tolerance band of +/- 2 per cent, which is wider than any other major emerging economy. He notes that the failure to achieve the target has occurred only once — when the inflation rate remained above 6 per cent for three consecutive quarters in 2022 — and a report was sent to the government in November 2022, but was not made public.
Former RBI Deputy Governor Michael Debabrata Patra has emphasized that India's inflation target should align with advanced economy standards. In an exclusive interview with Business Standard, Patra stated that if India has to become an advanced economy one day, its inflation target must align with the advanced economy average, which is 2 per cent today. He explained that there are several factors that need to be taken into account while deciding on the appropriate inflation target, including the time-varying trend rate of inflation. Patra noted that if the target is set above this trend, monetary policy can become overly restrictive and depress growth, while if the target is set below the trend, monetary policy will be unduly accommodative and produce bursts of high inflation. He highlighted that the 2025 RBI discussion paper on the monetary policy framework provides evidence on a wide diversity of opinion from the significant differences in voting patterns on the policy rate and stance across members over time.
