The Propriety of Adopting Inflation Targeting Framework in India

Of late, Inflation Targeting (IT), as a choice of monetary strategy has become a topic of hyper curiosity in the Indian Economic Milieu. Monetary policy regulations assist the central banks to exercise the order necessary to achieve their long-term goals and a good number of countries are making an explicit or formal inflation rate as the primary objective of monetary policy, with success. A key issue for central banks has been how to combine the goal of financial stability with the goal of price stability. Accordingly monetary policy regulations must guarantee financial stability since the relationship between money and prices is no longer as predictable as once thought. This paper throws a bird's eye view on Inflation Targeting as a contemporary monetary policy framework and a snail's eye view on the quintessence of Inflation Targeting Policy framework, its pros and cons, specific concerns of Inflation Targeting in India. Given the monetary set-up, India may not be a good candidate for adoption of the Inflation Targeting policy. However, this does not eliminate India's possibility and ability to apply this strategy over the medium and long term, if it continues to progress.