New Delhi: The central government has decided to continue its inflation control framework by maintaining the retail inflation target at 4 percent for another five year period ending March 31, 2031. The decision extends the existing monetary policy structure that guides inflation management in the country.
According to a gazette notification issued by the Department of Economic Affairs on March 25, the inflation target will remain at 4 percent with an upper tolerance limit of 6 percent and a lower limit of 2 percent. The framework will apply from April 1, 2026 to March 31, 2031.
India first adopted the inflation targeting system in 2016, formally assigning responsibility to the Reserve Bank of India to maintain price stability within the defined band. At that time, the government set the same 4 percent inflation target for a five year period ending March 2021. The framework was reviewed and retained again in 2021, making the latest extension the second time the government has continued with the same benchmark.
Under this system, the six member Monetary Policy Committee, headed by the RBI Governor, determines the policy interest rate required to keep inflation within the prescribed range. The committee reviews economic conditions regularly and adjusts monetary policy to manage price pressures while supporting economic growth.
Over the past decade, retail inflation has remained within the mandated range for most of the period, although volatility increased during the global pandemic years. Supply chain disruptions and international economic shocks also contributed to fluctuations during that time.
Recent data based on the Consumer Price Index shows retail inflation rising to 3.21 percent in February, compared with 2.74 percent in the previous month. The index is currently calculated using a new base year of 2024.
Ahead of the latest review, the RBI had released a discussion paper in 2025 seeking feedback on possible changes to the inflation targeting framework. The paper explored issues such as whether the focus should remain on headline inflation or shift toward core inflation, and whether the tolerance band or the target level should be revised.
Authorities concluded that the existing framework has broadly performed well and provides the stability and credibility needed to guide monetary policy in an increasingly uncertain global economic environment.
