India Extends Inflation Target Framework Till 2031

The Government of India has extended the mandate of the Reserve Bank of India (RBI) to maintain retail inflation at 4% (±2%) for another five-year period, ending March 31, 2031. The decision, taken in consultation with the RBI, continues the Flexible Inflation Targeting (FIT) framework that was first introduced in 2016 and later extended in 2021. 

 Key Highlights

• Inflation Target: 4%, with a tolerance band of 2%–6%
• Time Period: From April 1, 2026 to March 31, 2031
• Benchmark Indicator: Retail inflation measured by Consumer Price Index (CPI)

Legal & Institutional Framework: The FIT framework was introduced after amending the Reserve Bank of India Act, 1934 in May 2016. Under this system:

• The Central Government sets the inflation target every five years.
• This is done in consultation with the RBI.
• Upper and lower tolerance limits are also notified.

Failure Clause: Inflation is considered a failure if it remains above 6% or below 2% for three consecutive quarters 

Role of Monetary Policy Committee (MPC): The six-member Monetary Policy Committee is responsible for achieving the inflation target. It decides the policy repo rate to control inflation.

Composition of Six Members MPC: 3 members from RBI: RBI Governor (Chairperson), Deputy Governor, One RBI official; 3 members appointed by Central Government.  

Background: India formally adopted inflation targeting in 2016, aligning monetary policy with price stability goals. The framework was:

• First phase: 2016–2021
• Second phase: 2021–2026

Now extended: 2026–2031

Source: TH & RBI