Gupta: India's 4% inflation target renewed to 2031
Reserve Bank of India Deputy Governor Poonam Gupta announced the renewal of India's 4 percent inflation target with a ±2 percent tolerance band for another five years, extending through March 2031. The Government of India formalized this decision via a Gazette notification on March 25, 2026.
India's decade of inflation targeting
India's monetary policy framework was formally institutionalized in May 2016 with an amendment to the RBI Act, 1934, entrusting the Reserve Bank of India with the primary objective of maintaining price stability while considering growth.
This framework, centered on a 4 percent inflation target with a ±2 percent tolerance band, has demonstrably improved economic outcomes.
Average headline CPI inflation declined from 8.1 percent in the pre-IT decade (2006-16) to 4.6 percent in the IT period (2016-26), a 3.5 percentage point reduction.
Simultaneously, average annual GDP growth marginally increased from 6.8 percent to 7.0 percent, excluding COVID-affected years, with improved stability.
In 2025, India's headline inflation stood at 2.2 percent, significantly below the EMDE average of 5.2 percent and the world average of 4.1 percent, showcasing effective disinflation.
Consultation on core framework questions
The second statutory review of the inflation targeting framework adopted a more consultative approach, culminating in a Discussion Paper published on August 21, 2025.
This paper sought feedback on four central features: whether headline or core CPI inflation should be the operative guide, if the 4 percent target remains optimal, whether the ±2 percent tolerance band needs revision, and if a point target with a tolerance band should be replaced by a range.
The Reserve Bank of India received 75 direct responses, indicating broad engagement with these critical questions for the framework's future.
Durability meets evolving needs
The framework's renewal signals strong confidence in its proven ability to deliver lower, more stable inflation and support growth.
Yet, the comprehensive public consultation underscores a proactive willingness to critically evaluate and adapt to evolving economic realities.
This strategic balance of continuity with potential refinements is crucial for long-term effectiveness and credibility.