IFC – Is It A Good Framework for Monetary Policy of India?

By Rajiv Kumar, Geetima Das Krishna, and Sakshi Bhardwaj
16 November 2015

The Centre for Policy Research (CPR), Delhi in collaboration with the BSE Ltd., Mumbai have started a monthly Macro Economic Seminar Series. The objective of these Seminars is to generate fresh analytical insights into the Indian macroeconomic issues for potential use by policy makers. The unique format of these seminars is to bring together macroeconomists who have different perspectives on the state of the macro economy, depending upon their location in think tanks, financial institutions and corporate organisations.
The first seminar of the series was held in BSE corporate office, Mumbai on 26th October. The topic of the seminar was ‘IFC – Is It a Good Framework for Monetary Policy’. A panel discussion between Sajjid Chinoy, Surjit S bhalla and Ramgopal Agarwala was moderated by Rajiv Kumar.
The government released a revised draft of the Indian Financial Code (IFC) in July 2015 that formally mandated the RBI to move towards Flexible Inflation Targeting (FIT). Under this agreement, the objective of monetary policy is “primarily to maintain price stability, while keeping in mind the objective of growth.” This has opened up a debate on the appropriateness of the FIT for India and of the composition of the monetary policy committee (MPC) as that might affect RBI’s autonomy and dilute its principal responsibility for controlling inflation. Literature review does not gives clear picture whether Inflating targeting is beneficial for developing countries or not.