India's Successful Inflation Targeting: A Comparative Analysis

India has showcased a robust inflation targeting regime from 2021-2024, as per an SBI report. Effective coordination between the government, RBI, and banks has set India apart from global peers like the USA and Germany, achieving minimal deviations from inflation targets despite global pressures.

India has outperformed advanced economies like the USA, Germany, and France in following a largely successful inflation targeting regime, according to a research report by the State Bank of India (SBI). Government initiatives, the Reserve Bank of India (RBI), and banks have been credited for their coordinated efforts over the past decade in addressing inflation and enhancing policy transmission.

The SBI report emphasizes the synergy between the RBI, government, and banks in bringing about market reforms, which has made its inflation targeting efforts successful. It highlights that from 2021 to 2024, India recorded minimal deviations from its inflation targets, distinguishing itself from other global economies grappling with higher inflation rates.

The synchrony of monetary and fiscal policies, especially during the pandemic, has been a critical factor in maintaining price stability in India. The report underscores the challenges of India's pre-inflation targeting era, which included fiscal dominance, a large informal sector, and inefficiencies in loan pricing by banks. Despite high food inflation, the RBI's inflation targeting has noticeably anchored inflationary expectations, ensuring that food inflation does not spill over into core inflation.

The SBI report asserts that continuous and consistent communication of its 4 percent inflation target by the RBI is crucial in maintaining stable inflation expectations. This reinforced commitment has been instrumental in stabilizing overall inflation trends across the broader economy, even amidst rising global inflationary pressures.

(With inputs from agencies.)