Inflation targeting in India: select issues

Abstract

The adoption of inflation targeting in India has been a much debated topic which also becomes a challenge for the emerging economy. Though inflation targeting has already been adopted in many emerging and advanced countries, acceptability in India is a matter of concern. The paper argues that an emerging country like India needs to consider the composition of consumer price index; state of macro econometric models; and young demographics, unemployment rate and lack of social security before adopting inflation targeting. To modernize the monetary policy framework, India could consider introducing regular review of the regional economy; instituting a Monetary Policy Committee; and separating debt from monetary management, the paper argues.