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Considering the low growth associated with IT policy, can we conclude that India is not in a position for continuing with Inflation targeting? Critically analyse.

Topic: Indian Economy and issues relating to planning, mobilization, of resources, growth, development and employment.

3. Considering the low growth associated with IT policy, can we conclude that India is not in a position for continuing with Inflation targeting? Critically analyse. (250 words)

Reference:  Financial ExpressIndian Express

Why the question:

The article explains – Three decades after the start of the inflation targeting (IT) policy in New Zealand (1990), a question worth asking is whether it has succeeded in its primary objective of reducing inflation.

Key Demand of the question:

Analyse in the given conditions whether India is in a position of continuing with inflation targeting.

Directive:

AnalyzeWhen asked to analyse, you have to examine methodically the structure or nature of the topic by separating it into component parts and present them as a whole in a summary.

Structure of the answer:

Introduction:

Start with basics of Inflation and related policies in India.

Body:

Firstly, explain the major tools to control Inflation: Monetary Tools –  Inflation Targeting through Monetary Policy Committee in India. Fiscal Tools – through the enactment of Fiscal Responsibility and Budget Management Act (FRBM).

Then trace the methods of Inflation targeting in India from past to present in the recent times.

Discuss the Issues with Inflation targeting in India such as – Decline in the growth due to high repo rates: from 8% (pre- IT) to 5% (post IT) etc.   

Conclusion:

Conclude that considering the low growth associated with IT policy, we can conclude that India is not in a position for continuing with Inflation targeting.