Narendra Modi Formalizes India’s Inflation Target with Reserve Bank of India

The Government of India and the Reserve Bank of India have signed a monetary policy agreement that will fix a target for consumer price inflation of 4% for the 2016/17 fiscal year. As per the agreement, the RBI will aim to bring retail inflation below 6 percent by January 2016. This is the biggest change in the Monetary Policy of India, since the 1991 Financial Reforms.

Points to Remember

• Reserve bank of India should release a report every six months, regarding the sources of Inflation and also the Inflation forecast for the period between six and eight months. 
• In case of failure, ie if inflation is more than 6% for three consecutive quarters for fiscal 2015-16 or if it is less than 2% for three consecutive quarters in 2016-17, then RBI would give the reasons for its failure, remedial action proposed and an estimated time within which the given target would be reached.
• The monetary policy committee will have eight members. It include finance ministry nominee and external members. The RBI governor will head the panel and also will have the veto power in the new monetary policy framework.
• If at all, there is any dispute between RBI and Government, it should be resolved through a meeting between the RBI Governor and the Central Government.