Evaluating India’s Inflation-Targeting Framework: An Analysis

Abstract

This paper explores the how India balances low inflation with high economic growth while facing fiscal challenges. Low inflation slows nominal GDP growth, reducing tax revenue and making it harder for the government to meet Budget and fiscal deficit targets. Inflation is defined as the rise in prices of commodities and services in an economy over a period of time. Inflation is the sustained rise in the general price level every rupee buys a little less than before. India's inflation control strategy is currently restricted to using the interest rate to dampen aggregate demand. Food price inflation in India has recently reached nearly 10%, significantly above historical averages. It conveniently absolves the policymaker from addressing the challenge of ensuring the production of food at affordable prices.