India adopted inflation targeting framework in October 2016 through amendments to RBI Act 1934. RBI mandated to maintain Consumer Price Index inflation at 4% with tolerance band of ±2% (2-6% range). Monetary Policy Committee constituted with six members making interest rate decisions through majority voting. Framework replaced multiple indicator approach used earlier. Government sets inflation target every five years in consultation with RBI. Current target period runs till March 2026. Framework aims providing nominal anchor for monetary policy while supporting growth.

Inflation targeting represents fundamental shift in India's monetary policy from growth-accommodation to price stability primacy. The 4%±2% band balances emerging economy growth needs with price stability requirements. Lower bound of 2% prevents deflationary risks while 6% upper bound controls inflationary expectations. MPC's institutional design ensures technocratic decision-making with equal representation from RBI and government nominees, though RBI Governor holds casting vote. Framework's success measured through average inflation over medium-term, not month-to-month variations. This allows RBI flexibility during supply shocks like food/fuel price spikes. Critics argue rigid targeting may conflict with growth objectives during economic downturns, but proponents highlight reduced inflation volatility and anchored expectations. Framework aligns with global central banking practices while accommodating India's structural challenges like monsoon dependence and informal sector prevalence. Success depends on fiscal-monetary coordination and structural reforms addressing supply-side inflation sources.