The RBI’s ‘weighty’ food problem
The weight of food has skewed inflation control policy - V V Krishnan×
The food articles’ high weight and their price volatility have reduced the efficacy of the central bank’s policy actions
The flexible inflation targeting framework adopted by RBI in 2016 is considered a significant economic reform in India post 2000. Under this framework, maintaining a 4 per cent CPI headline inflation gets the highest priority in the hierarchy of monetary policy objectives. This rule based policy making renders monetary policy transparent and predictable.
However, of late, adoption of this framework is being criticised on many accounts. Many experts believe that such single minded monetary policy making is not suitable for an emerging country like India. They indirectly hold this framework responsible for accelerating the slow-down of the Indian economy.