Questions and current affairs, every morning.

"Inflation targeting has served India well, but it was never designed for supply-side shocks." Examine.

In your answer, consider the following:

I. The Monetary Policy Framework Agreement of 2015 and the statutory basis given to it by the amended RBI Act, 1934, including the 4% CPI target with a tolerance band of 2–6%.

II. The composition and working of the Monetary Policy Committee, and how its decisions are communicated and reviewed.

III. The distinction between demand-pull and cost-push inflation, with reference to food and fuel price shocks, monsoon failures and global commodity cycles.

IV. The experience of 2019–20 onion prices, the 2022 edible oil and energy shock following the conflict in Europe, and the RBI's response in each case.

V. Whether headline or core inflation is the better target for an economy where food carries nearly half the weight of the consumption basket.

VI. The role of fiscal and supply-side measures — buffer stocks, export curbs, import duty cuts and open market sales — alongside monetary policy.

VII. The costs to growth, employment and credit of tightening into a supply shock, and the risk of de-anchoring inflation expectations if the RBI does not act.

Conclude with a view on whether the framework needs to change at its next review, and if so, how. (250 words, 15 marks)