The government could re-examine its 2016 legislative mandate and modify RBI’s inflation target to cover both WPI and CPI. An experimental producer price index can be the first step in moving to a regular index.
The Reserve Bank of India adopted inflation-targeting monetary policy based on the New Keynesian 3-equation model. How realistic are the assumptions, and how effective have monetary policy instruments been in controlling the inflation rate? Given India’s structural specificities, what are the implications of cost-push inflation for policy rate and output gap? This paper