This article is an attempt to look at the policy of inflation targeting in the emerging economies with special reference to India. A brief overview of the history of inflation in India makes a pointer to the very high rate of inflation of 6.46% during the week ended on March 10, 2007. This triggers thinking on the instruments of inflation targeting and the preconditions required for its successful implementation. Finally, the efficacies of the instruments in vogue now and the impact of the Annual Policy Statement 2007-08 have been looked into.

That India is a rapidly growing economy is certainly beyond debate. As given by sound economic reasoning, structural adjustments in the economy during these rapid phases of transition generate frictions which require concerted policy action. One such offshoot of this process of development is the invincible rate of inflation which remains a conundrum and thereby poses a serious challenge to the policymakers. An attempt has therefore been made to review the efficacy of monetary policy in the context of inflation targeting in the emerging economies with special reference to India. It is firmly believed that a well-conceived monetary policy can help reigning in inflation in economies with accelerated growth and bring financial stability in the system by containing inflation expectations.

The focus on monetary policy today is a worldwide phenomenon with many developed and developing countries adopting inflation targeting regimes.

At this stage a brief overview of the history of inflation in India would be most appropriate. At the outset it should be conceded that a distinct feature of the growth process in India is the stability as reflected by the low coefficient of variation of the real GDP growth during the 1990s which is the post-reforms period. Accordingly, the second half of the 1990s was a very stable period as far as inflation was concerned. Large capital inflows and rising fuel prices did not aggravate the existing rates of inflation in any way. This can be largely attributed to the very effective monetary management in the wake of trade openness.

Treasury Management Magazine, Monetary Management, Indian Financial System, Gross Domestic Products, GDP, Wholesale Price Index, WPI, World Bank, Indian Inflation, Real-Time Gross Settlements System, RTGS, Indian Economy, Reserve Bank of India, Clearing Corporation of India Limited, CCIL, Liquidity Management, Global Financial System, Cash Reserve Ratio, CRR.