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Amid suggestions for excluding food inflation while setting benchmark interest rates, former Reserve Bank of India (RBI) Governor Raghuram Rajan has said that he is against excluding food prices from headline inflation, as it would erode the ‘great faith’ of people in the central bank, which has been mandated by the government to keep inflation in check. He further said it is best that inflation target a basket which is what the consumer consumes because that affects the consumers perception of inflation and ultimately inflationary expectations.  

He said ‘you cannot affect food prices in the short run, but if food prices stay high for a long time that does imply there are constraints on producing food relative to the demand, which means to balance that you have to bring down inflation in other areas, which is what the central banks can do.’ 

According to him, the RBI can target the aggregate price level. The weightage of food in the overall consumer price inflation, which stands at 46 per cent currently, was done in 2011-12, and needs to be revisited. India introduced the inflation-targeting framework in 2016 under which the Reserve Bank of India is mandated to keep retail inflation at 4 per cent, with a margin of 2 per cent on either side. The benchmark policy rates are decided bi-monthly by the RBI on the basis of movement in consumer price index, which includes food, fuel, manufactured goods and select services. The RBI projects retail inflation for 2024-25 at 4.5 per cent, lower than 5.4 per cent in the last fiscal.