Assessing inflation targeting in India

Ashima Goyal ()
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Ashima Goyal: Indira Gandhi Institute of Development Research

Indira Gandhi Institute of Development Research, Mumbai Working Papers from Indira Gandhi Institute of Development Research, Mumbai, India

Abstract: The literature expects it to take a long to establish inflation targeting (IT) in emerging markets, but the Indian experience suggests that suitable adaption of IT to domestic structure and shocks as well as circumstances can fast-track the process while reducing growth sacrifice. The paper provides evidence and possible further refinements. Key features that worked well were flexible implementation, unlike the pre-pandemic over-strictness; counter-cyclical smoothing of shocks with real rates near equilibrium; good fiscal-monetary coordination with independence in rate-setting; use of complementary prudential regulation and liquidity management; establishing adequate independence from global cycles. The IT framework needs to preserve these features. Use of better inflation data, more transparency and accountability in inflation forecasts and in liquidity management would improve outcomes.

Keywords: inflation targeting; Indian experience; structure; shocks; flexibility; real rates; indpendence (search for similar items in EconPapers)
JEL-codes: E52 E63 E65 (search for similar items in EconPapers)
Pages: 31 pages
Date: 2025-07
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Persistent link: https://EconPapers.repec.org/RePEc:ind:igiwpp:2025-018

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