Govt retains 4% inflation target for FY27–FY31
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The union government has retained the consumer price inflation (CPI) target at 4%, with a tolerance band of 2%–6%, for the five-year period from April 1, 2026 to March 31, 2031, extending the existing monetary policy framework.
The notification, issued by the Ministry of Finance in consultation with the Reserve Bank of India (RBI), keeps unchanged the structure first adopted in 2016, under which the RBI’s Monetary Policy Committee (MPC) is mandated to maintain inflation within the band.
Five-year review cycle
Under Section 45ZA of the RBI Act, the inflation target is set by the government once every five years. The framework was last renewed in 2021 and was due for review ahead of April 2026.
India formally adopted the flexible inflation targeting (FIT) framework in 2016, shifting the monetary policy anchor to headline CPI inflation with a 4% midpoint and a 2%–6% tolerance band.
Recent inflation trend
Retail inflation has remained below the midpoint in recent months. CPI inflation stood at 3.21% in February 2026, compared with 2.75% in January, according to official data. Food inflation, which has a major weightage in the CPI basket, has moderated after earlier volatility.
For FY26, the RBI has projected average inflation at around 2.1%, with expectations of a gradual firming towards the 4% target in FY27.
Track record under the framework
Since the introduction of FIT, inflation has remained within the 2%–6% band for most of the period, with intermittent breaches.
Inflation exceeded the upper tolerance level for several months during 2020–2022 due to pandemic-related supply disruptions and elevated global commodity prices. It also briefly fell below the lower bound in late 2025, driven by a sharp correction in food prices.
The framework requires the RBI to explain any breach of the tolerance band and outline remedial actions. The MPC uses the inflation target as the primary anchor for setting policy rates.
Economists expect inflation to face upward pressures in FY27 from global factors, including energy prices and weather-related risks to food output, even as domestic demand conditions remain stable.