Inflation Targeting in India

23 Pages Posted: 21 Feb 2014

See all articles by Saakshi Mahajan

Saakshi Mahajan

Indian Institute of Management (IIMB), Bangalore

Souvik Saha

Indian Institute of Management (IIMB), Bangalore

Charan Singh

Indian Institute of Management (IIMB), Bangalore

Date Written: February 20, 2014

Abstract

Inflation targeting (IT), since its inception, has been a topic of much debate for economists all around the world. In this paper, the suitability of inflation targeting for an emerging economy like India is explored, pitching it against the multi-variable approach currently being followed. One of the foremost challenges in the present context of global economic crisis is the debate whether priority should be accorded to IT or financial stability. Also, in India, there is still another dimension and that is, which of the multiple price indices would be most appropriate for fixing as an anchor of IT. Therefore, this paper also evaluates different forms of CPI, WPI and PPI in order to find which amongst them would be the best indicator of inflation in the Indian scenario. Through analysis of conditions prevalent in India, this paper justifies why inflation targeting would not be an appropriate policy for India at this juncture, and recommends certain changes in the present multi-variable approach that would make it more robust and effective.

Keywords: inflation targeting, price indices, multi-indicator policy, transmission mechanism

Suggested Citation

Mahajan, Saakshi and Saha, Souvik and Singh, Charan, Inflation Targeting in India (February 20, 2014). IIM Bangalore Research Paper No. 449, Available at SSRN: https://ssrn.com/abstract=2398865 or http://dx.doi.org/10.2139/ssrn.2398865

Saakshi Mahajan

Indian Institute of Management (IIMB), Bangalore ( email )

Bannerghatta Road
Bangalore, Karnataka 560076
India

Souvik Saha

Indian Institute of Management (IIMB), Bangalore ( email )

Bannerghatta Road
Bangalore, Karnataka 560076
India

Charan Singh (Contact Author)

Indian Institute of Management (IIMB), Bangalore ( email )

Bannerghatta Road
Bangalore, Karnataka 560076
India
080-26993818 (Phone)

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