Current 4% inflation targeting framework should be retained: Sanjeev Sanyal

India’s consumer price inflation cooled to a 75-month low of 2.82 percent in May

India’s current inflation targeting framework of 4 percent, with a tolerance band of plus or minus 2 percent, remains appropriate and should be retained, according to Sanjeev Sanyal, member of the Prime Minister’s Economic Advisory Council (PM-EAC).

Instead of altering the band, Sanyal has stressed the need to update the Consumer Price Index (CPI) basket and its base year to ensure inflation measurements better reflect contemporary consumption patterns.

“I think the 2 to 6 percent range has worked well for us and this should be fine. What needs to be done perhaps is to revise the CPI basket and base year. We need a more modern basket which reflects today's consumption. That will be a better reflection of actual inflation. We have recently done a national consumer survey, and I believe the Ministry of Statistics and Programme Implementation (MOSPI) is working on this,” Sanyal told Moneycontrol.

His remarks come at a time when retail inflation has eased considerably. India’s consumer price inflation cooled to a 75-month low of 2.82 percent in May, down from 3.2 percent in April, as food inflation dropped below 1 percent for the first time in nearly four years, according to official data released on June 12.

This marked the fourth consecutive month in which headline inflation has stayed below the Reserve Bank of India’s (RBI's) mid-point target of 4 percent. Food inflation, which carries significant weight in the CPI, has remained under 3 percent for three consecutive months.

Sanyal applauded the RBI’s monetary policy moves for aligning with the moderation in price pressures. “Inflation has come down very significantly despite the recent spike in oil prices. So, as things stand, it looks like there is no real pressure on inflation and the Reserve Bank is quite right in using the space to both reduce interest rates and the Cash Reserve Ratio (CRR) to improve liquidity. I think the Reserve Bank's actions are in line with the reduction in inflation and they are absolutely correct in their assessment,” he said.

Sanyal’s comments reinforce the view that while the RBI’s inflation targeting framework has helped anchor expectations, updating the CPI basket and base year is the next important step to ensure the index reflects the realities of India’s evolving consumption landscape.

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