Guest Talk on ‘New Monetary Policy Framework in India’ Held at IIM Indore

By Payal Dwivedi on September 9, 2016 at 11:46 AM

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Under the Economic Lecture Series introduced by IIM Indore in January 2014, a Guest Talk on ‘New Monetary Policy Framework in India: Challenges and Opportunities’ was held at IIM Indore on September 8, 2016. Dr. B.K. Bhoi, Principal Advisor, Monetary Policy Department of Reserve Bank of India (RBI) was the speaker for the talk.

The Reserve Bank of India in consultation with the Government of India has recently adopted Flexible Inflation Targeting (FIT) as the new monetary policy framework in India. The regime shift from multiple indicator approach to the FIT is historic and in line with international best practices. Dr. Bhoi was responsible for the implementation of the FIT in India.

He began his talk conversing about how the framework of monetary policy in India has evolved since independence and what a monetary policy can and cannot do. He noted how various monetary policies had been established and how the agreement on New Monetary Policy Framework took place. ‘MoU was signed between RBI and Government on February 20, 2015 on the new policy. The objective of monetary policy was primarily to maintain price stability while keeping in mind the objective of growth as well’, he stated during his presentation. Dr. Bhoi said that the policy now aims to bring inflation down to 4 percent with a band of +/- 2 percent. He also discussed about the amendment in RBI Act: Finance Act, 2016-17.

Discussing the Growth-Inflation Dynamics in India, Dr. Bhoi noted that the potential growth of the country has declined and the persistence of inflation despite growth slowdown is a major concern.He also discussed various challenges faced by FIT namely, adhering to the fiscal consolidation path, complex growing inflation dynamics and sustainability of low CPI. He concluded his talk mentioning that the coordination between monetary policy and fiscal policy is necessary to have low and stable inflation. The talk was followed by a Q&A session.