Question
Download Solution PDFWhich of the following committees suggested adopting flexible inflation targeting?
Answer (Detailed Solution Below)
Detailed Solution
Download Solution PDFThe correct answer is Urjit Patel Committee.
Key Points
- The Urjit Patel Committee was established by the Reserve Bank of India (RBI) in 2013 to review the monetary policy framework in India.
- The committee recommended adopting flexible inflation targeting (FIT) as the primary objective of monetary policy to ensure price stability and economic growth.
- Flexible inflation targeting involves setting a specific inflation target, typically around 4% with a tolerance band of +/- 2%, for the RBI to maintain.
- The committee's recommendations led to the amendment of the RBI Act in 2016, formally adopting flexible inflation targeting as India's monetary policy framework.
- The Monetary Policy Committee (MPC) was constituted in 2016 as a direct outcome of the Urjit Patel Committee's recommendations to decide on policy rates collaboratively.
Additional Information
- Flexible Inflation Targeting (FIT)
- FIT is a monetary policy framework that focuses on controlling inflation within a specified target range while supporting economic growth.
- India's inflation target is 4%, with a tolerance band of 2%-6%, as set by the government and RBI.
- This framework allows flexibility in responding to economic shocks while maintaining price stability.
- Monetary Policy Committee (MPC)
- MPC is a six-member committee established under the RBI Act, 1934, to determine India's monetary policy and interest rates.
- It consists of three RBI members and three external members appointed by the government.
- MPC ensures transparency and accountability in decision-making regarding monetary policy.
- RBI Act Amendment 2016
- The amendment formalized the adoption of flexible inflation targeting in India.
- It mandated the RBI to focus on achieving the inflation target while considering economic growth.
- This marked a shift from a multi-indicator monetary policy framework to an inflation-targeting regime.
- Urjit Patel's Contribution
- Urjit Patel served as the Deputy Governor of RBI and later as its Governor from 2016 to 2018.
- His efforts were instrumental in transitioning India's monetary policy framework to flexible inflation targeting.
Last updated on Jun 23, 2025
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