Opinion Time to rebalance India’s inflation strategy

By March 2026, India must decide whether to retain or modify the inflation targeting (IT) regime, which has been guided by a 4% Consumer Price Index (CPI) inflation target with a ±2% band since the 2016 amendment to the Reserve Bank of India (RBI) Act. The review will revisit familiar questions: Should the target remain at 4%? Should policy focus on headline or core inflation? Should the tolerance band be revised? While these questions are important, they overlook the core challenge. In an economy where supply shocks, bottlenecks, sectoral imbalances, and mark-up pricing alongside stagnant wages drive much of the volatility, the policy rate alone cannot shoulder the burden of price stabilisation. The review risks remaining inside the very frame that produces the trade-offs; it is the desig