Inflation targeting in India: Trade-offs and demographic challenges

Abstract

Inflation Targeting was pioneered and first adopted by the Reserve Bank of New Zealand in late 1990s, followed by several other developed nations. Since its inception, the topic has been of interest for many academicians and policy makers alike. In this report, we examine the appropriateness of the policy to emerging countries by studying the example of India, which adopted the regime recently, after the recommendations of Urijit Panel, under Governor Raghuram Rajan. The impact of this policy on usual indicators like growth and financial stability has been examined, with focus on the possible trade-off between inflation and unemployment. The paper also delves into reasons pertaining to the demographic dividend by commenting on the effects of inflation targeting on different aspects of the lives of general populace of India.