{"id":95183,"date":"2026-03-27T18:13:02","date_gmt":"2026-03-27T12:43:02","guid":{"rendered":"https:\/\/vajiramandravi.com\/current-affairs\/?p=95183"},"modified":"2026-03-27T18:13:02","modified_gmt":"2026-03-27T12:43:02","slug":"flexible-inflation-targeting-fit-framework","status":"publish","type":"post","link":"https:\/\/vajiramandravi.com\/current-affairs\/flexible-inflation-targeting-fit-framework\/","title":{"rendered":"Flexible Inflation Targeting (FIT) Framework, Background, Significance"},"content":{"rendered":"<p><span style=\"font-weight: 400;\">The Government of India has retained the flexible inflation targeting (FIT) framework, keeping the retail inflation target at 4%, with an upper tolerance of 6% and a lower tolerance of 2%, for another five years, from April 1, 2026, to March 31, 2031. This decision follows the second five-year review of the framework, held in the national capital in March 2026, reflecting the government\u2019s commitment to price stability amid global uncertainties.<\/span><\/p>\n<h2><b>Flexible Inflation Targeting (FIT) Framework Background<\/b><\/h2>\n<p><span style=\"font-weight: 400;\">The <\/span><b>flexible inflation targeting framework<\/b><span style=\"font-weight: 400;\"> was <\/span><b>introduced in May 2016<\/b><span style=\"font-weight: 400;\"> through an <\/span><b>amendment to Section 45ZA of the <a href=\"https:\/\/vajiramandravi.com\/upsc-exam\/reserve-bank-of-india\/\" target=\"_blank\">Reserve Bank of India<\/a> (RBI) Act, 1934, empowering the central bank to maintain inflation within a specified target range. <\/b><span style=\"font-weight: 400;\">The framework is anchored on the following principles:<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\"><a href=\"https:\/\/vajiramandravi.com\/upsc-exam\/inflation\/\" target=\"_blank\"><strong>Inflation<\/strong><\/a> is measured through the <\/span><b>Consumer Price Index (CPI)<\/b><span style=\"font-weight: 400;\">.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">The <\/span><b>Monetary Policy Committee (MPC) <\/b><span style=\"font-weight: 400;\">of the RBI is <\/span><b>mandated to ensure CPI inflation remains at 4% \u00b1 2%.<\/b><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">The <\/span><b>Monetary Policy Committee has six-members<\/b><span style=\"font-weight: 400;\"> &#8211;\u00a0 three from RBI (including the RBI Governor) and 3 appointed by the Government of India. All the members have one vote and in the event of equality of votes, the Governor gets a second or casting vote.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">The <\/span><b>government and RBI<\/b><span style=\"font-weight: 400;\"> are required to <\/span><b>review the FIT framework every five years,<\/b><span style=\"font-weight: 400;\"> with the first review conducted in March 2021.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">The RBI shall be seen to have failed to meet the Target <\/span><b>if inflation is more than 6% or less than 2% for three consecutive quarters.\u00a0<\/b><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>In case RBI fails to meet the target, it will have to give a written report to Government of India explaining the reasons of failure, remedial actions <\/b><span style=\"font-weight: 400;\">to be taken and an estimated time period within which the Target would be achieved<\/span><\/li>\n<\/ul>\n<h2><b>Flexible Inflation Targeting (FIT) Framework Performance<\/b><\/h2>\n<p><span style=\"font-weight: 400;\">An analysis by the RBI shows that the <\/span><b>flexible inflation-targeting framework has helped reduce inflation significantly<\/b><span style=\"font-weight: 400;\">:<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Average Consumer Price Index (CPI) inflation declined from 6.8% (2012-16) to 4.9%<\/b><span style=\"font-weight: 400;\"> in the years following the adoption of the framework.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Between 2016 and 2021, <\/span><b>retail inflation remained within the target band of 2-6%<\/b><span style=\"font-weight: 400;\"> for roughly three-fourths of the time, and for about two-thirds of the time thereafter.<\/span><\/li>\n<\/ul>\n<p><b>In February 2026, CPI inflation reached 3.21%, up from 2.74% in the previous month, <\/b><span style=\"font-weight: 400;\">remaining well within the targeted range, reflecting the effectiveness of the framework in maintaining moderate inflation.\u00a0<\/span><\/p>\n<h2><b>Flexible Inflation Targeting (FIT) Framework Significance<\/b><\/h2>\n<p><span style=\"font-weight: 400;\">The flexible inflation targeting framework plays a critical role in India\u2019s macroeconomic policy:<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Price Stability<\/b><span style=\"font-weight: 400;\">: Ensures inflation remains within a predictable range, protecting the purchasing power of citizens.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Policy Coordination<\/b><span style=\"font-weight: 400;\">: Encourages alignment between monetary policy (RBI) and fiscal policy (government) to maintain overall economic stability.<\/span><\/li>\n<li><b>Accountability<\/b><span style=\"font-weight: 400;\">: The RBI is answerable to Parliament if targets are missed, enhancing transparency and credibility.<\/span><\/li>\n<li><b>Flexibility<\/b><span style=\"font-weight: 400;\">: The \u201cflexible\u201d nature allows the RBI to respond to supply shocks, global disruptions, and unforeseen economic risks without abandoning the price stability objective.<\/span><\/li>\n<\/ul>\n","protected":false},"excerpt":{"rendered":"<p>Flexible Inflation Targeting framework in India keeps CPI inflation at 4 percent with a 2 to 6 percent band, ensuring price stability, policy coordination, and macroeconomic stability.<\/p>\n","protected":false},"author":25,"featured_media":95247,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[786],"tags":[6407],"class_list":{"0":"post-95183","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-general-studies","8":"tag-flexible-inflation-targeting-fit-framework","9":"no-featured-image-padding"},"acf":[],"_links":{"self":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/posts\/95183","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/users\/25"}],"replies":[{"embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/comments?post=95183"}],"version-history":[{"count":4,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/posts\/95183\/revisions"}],"predecessor-version":[{"id":95220,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/posts\/95183\/revisions\/95220"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/media\/95247"}],"wp:attachment":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/media?parent=95183"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/categories?post=95183"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/tags?post=95183"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}