Shaktikanta Das: Art of monetary policy making - the Indian context

Speech by Mr Shaktikanta Das, Governor of the Reserve Bank of India, at the Delhi School of Economics (DSE) Diamond Jubilee Distinguished Lecture, New Delhi, 5 September 2023.

The views expressed in this speech are those of the speaker and not the view of the BIS.

I am delighted to be here with all of you to celebrate the Diamond Jubilee Year of the Delhi School of Economics (DSE). The Delhi School has made a distinct mark as an institution of excellence and very high reputation, both in India and abroad. The list of eminent economists and distinguished alumni associated with the DSE is long and impressive. The School has inspired generations of students to excel in diverse streams such as academia, research, government and corporate sectors. In the Reserve Bank of India, we have also benefitted immensely from the DSE, with a continuous stream of students joining the RBI. It is a matter of pride for me to be part of this momentous year in the history of the institute which has contributed immensely to the policy discourse in India.

Today, I have chosen to speak on "Art of Monetary Policy Making: The Indian Context". As you would be aware, India formally adopted the flexible inflation targeting (FIT) framework in 2016, in broad alignment with global trends. The underlying principle of this framework is that a clearly articulated, legislatively mandated numerical inflation target is the best foundation for overall macroeconomic stability. Low and stable inflation helps households and businesses in planning for long-term savings and investments which ultimately drive innovation, productivity and sustainable growth. On the contrary, high and volatile inflation corrodes the economy by denting productivity and the long-term growth potential. Inflation also imposes disproportionate burden on the poor.

I have structured my talk in the following sequence: (i) evolution of monetary policy in India, culminating in the adoption of flexible inflation targeting (FIT) framework; (ii) key elements of this framework, including the forecasting process; (iii) conduct of monetary policy under the FIT regime; and (iv) monetary policy challenges at the current juncture.