Targeting non-food inflation would be a double-edged sword for RBI

livemint.com:

Earlier this year in January, the Reserve Bank of India’s flexible inflation targeting framework completed a decade as the primary determinant of Indian monetary policy. Informally adopted in January 2014 and officially in 2016, the framework has been the subject of considerable debate over the last few years. There really are two branches to India’s inflation targeting debate: the numerical target—4% in a band of 2-6%, and the measure of inflation itself, which is headline inflation as measured by the consumer price index (CPI).

The Economic Survey for 2023-24 has waded into this discussion, calling for a re-examination of the framework to see whether the target can be spelt out in terms of inflation excluding food. The Survey makes a fairly compelling argument: food prices can’t really be countered by tools at the disposal of the monetary policy authority. Instead, it is the government that acts and helps cool these prices, which in turn “prevents farmers from benefiting from the rise in terms of trade in their favour".

The Survey instead suggests that RBI focus on controlling inflation excluding food, leaving the government to take care of the hit to the pockets of the poor and low-income households from rising food prices through direct benefit transfers or even food coupons. Given a choice, RBI would probably jump at the opportunity to not have to worry about food prices. Consider the last 10 months, which have seen CPI inflation average 5.1% and stay firmly within RBI's target band of 2-6%.