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Centre adopts consumer price inflation target of 4%

Union Minister Arjun Ram Meghwal had tabled a notice giving statutory backing to the target

Policy Pulse
Publish Date: Aug 6 2016 1:03PM | Updated Date: Aug 6 2016 1:05PM

Centre adopts consumer price inflation target of 4%

 The Centre has adopted a consumer price inflation (CPI) target of 4 percent  plus or minus 2 percent for the period between now and March 31, 2021, sticking to a deal signed with the Reserve Bank of India (RBI) in February 2015.

 
Union Minister of State for Finance Arjun Ram Meghwal had tabled a notice giving statutory backing to the target and the notion of price stability as main objective of monetary policy in the Lok Sabha.
 
The implication of the approach is that if the Central Bank fails to meet the target for any three successive quarters, it will have to set out a report to the government stating reasons for the failure and propose time-bound remedial action to achieve the target.
 
Government also started process to select its three members in the six-member monetary policy committee (MPC) by appointing three external members in the selection panel.
 
Moves rest fears among sections of analysts about any change from policy paradigm after the exit of incumbent governor Raghuram Rajan, who played a major role in institutionalising a monetary policy framework and a “committee-based approach” to setting interest rates.
 
While supporters of inflation-targeting approach say it is an authoritative for sustainable economic growth, many including former RBI governor D Subbarao have questioned its advisability, by saying that global experience showed it “is neither necessary nor sufficient to maintain price stability”.