4. Control inflation: Try Inflation Targeting?

Inflation Targeting should become a centrepiece of a clearer, more defined and credible medium-term framework for macroeconomic stability. As part of this, Goldman Sachs recommends greater independence for the Reserve Bank of India and the abolishment of all FX controls.

The following is the response to the most frequent objections.

• India does not have an official and credible consumer price index (CPI). It should spend some resources to develop one.
• India doesn't have an inflation 'problem'. That may be true currently, but it needs a framework to solidify it further.
• Food prices would constitute too big a share of India's most likely representative consumer price basket, and many of these prices are administered. The target should exclude food and energy and, as India develops, the government should not administer prices frequently.