The Reserve Bank of India (RBI) has strongly defended retaining its current inflation-targeting framework, with Deputy Governor Poonam Gupta saying the decision to extend the 4% target reflects both its proven track record and the need for policy stability amid global uncertainty. 

The government last month renewed the inflation target of 4%, with a tolerance band of ±2% for another five years through March 2031, keeping the framework unchanged. 

Speaking at an event in New Delhi on Tuesday, Gupta said the extension “invites reflection, not merely on continuity, but also on what a decade of experience has taught us,” signalling that the central bank sees merit in staying the course rather than altering the framework. 

Framework has delivered results 

Gupta said India’s experience with inflation targeting has been broadly positive, with both price stability and growth holding up over the past decade. “Inflation has declined and stabilised,” she noted, pointing out that average headline inflation fell from 8.1% in the pre-inflation targeting period to 4.6% after its adoption. 

Addressing concerns that inflation targeting may hurt growth, she added that “India's experience does not bear this out,” noting that “price stability and growth have thus proved complementary rather than conflicting objectives under the Indian framework.” 

She also highlighted that inflation expectations have become better anchored while policy credibility and transparency have improved under the current regime. 

Strong backing for status quo 

She made it clear that both domestic feedback and global experience support retaining the existing design of monetary policy. 

Gupta said, “the suggestions received, the experience of the past ten years, and the international evidence all seem to favour retaining headline inflation as the target.” 

On the question of the inflation level itself, she added that “the analytical arguments; suggestions received; and international experiences seem to favour the 4% target as optimal for India.” 

Similarly, the current tolerance band has proven effective in absorbing shocks, with Gupta noting that it has “served the framework well, providing the flexibility necessary to absorb large external shocks without sacrificing the credibility of the target itself.” 

Stability amid global uncertainty 

Importantly, the RBI sees continuity in the framework as a deliberate policy choice at a time of rising global risks.  

“The decision to preserve the framework's core architecture… is a policy choice of consequence,” Gupta said, pointing to challenges such as geopolitical tensions, supply disruptions and volatile energy prices. She added that the latest review “strengthens the framework precisely when it is most needed.” 

Scope for future tweaks 

While defending the current structure, Gupta indicated that refinements could be considered in future reviews depending on how growth and inflation evolve. 

“If growth-inflation mix evolves as it has in the past ten years… one could perhaps consider tweaking the level of inflation and the tolerance band a bit,” she added while cautioning that persistent global uncertainty may require retaining flexibility.