Inflation Targeting in Bharat: Needonomics as the Way Forward

Dr Mayank Goel Vice President Axis Bank & Prof Madan Mohan Goel, Proponent Needonomics & Former Vice-Chancellor

Inflation has become one of the most persistent and pressing economic challenges across the globe, including Bharat (India). Despite being one of the fastest-growing economies in the world, Bharat is not immune to the inflationary shocks that threaten the welfare of its citizens, especially the middle class. Traditionally, policymakers have relied on monetary and fiscal instruments to manage inflation. However, the Needonomics School of Thought (NST) argues that these conventional approaches are insufficient and often ineffective. Instead, NST emphasizes needo-consumption by the middle class as the key to addressing inflation sustainably.

This article critically examines the current framework of inflation targeting in Bharat, highlights its shortcomings, and explores how reorienting it in line with Needonomics can pave the way toward stable, inclusive, and sustainable economic growth.

Inflation and Its Discontents

Inflation erodes purchasing power and disproportionately affects different income groups. While the poor may receive targeted subsidies and welfare benefits, the middle class—the backbone of Bharat’s consumption economy—finds itself the hardest hit. Rising food and energy prices destabilize household budgets, curtail discretionary spending, and foster a sense of insecurity.

The Reserve Bank of India (RBI) currently adopts a flexible inflation targeting (FIT) framework, with a target of 4% consumer price inflation (CPI) and a tolerance band of ±2%. However, in practice, the RBI gives greater emphasis to core inflation (excluding food and energy prices) on the grounds that monetary policy has little influence over volatile items like food and fuel. This bias leaves middle-class families vulnerable, as food inflation directly impacts their household expenses.

Limitations of Current Inflation Targeting

1. Core vs. Retail Inflation Confusion

A major weakness of the current framework is the ambiguity regarding which inflation metric guides policy—core inflation or retail inflation. Stakeholders, including businesses and households, deserve clarity. Core inflation may suit technical analysis, but retail inflation reflects the lived realities of families.

2. Neglect of Food Inflation

Food and fuel inflation are episodic but frequent in Bharat. Excluding them from policy considerations underestimates their destabilizing impact on middle-class consumption and economic confidence.

3. Over-Reliance on Monetary Policy

Monetary policy alone cannot tame supply-driven inflation. Interest rate hikes slow investment and growth but do little to bring down vegetable or energy prices. Fiscal and structural measures must complement monetary tightening.

4. Measurement Issues

Inflation measurement in Bharat suffers from methodological limitations. Point-to-point basis calculation and discrepancies between Wholesale Price Index (WPI) and Consumer Price Index (CPI) often create confusion. Policymakers must acknowledge these gaps and invest in better statistical systems.

5. Global Linkages and Capital Flows

Inflation in Bharat is also shaped by global commodity cycles, exchange rate movements, and capital flows. Trade tensions and tariff threats, such as those  posed by the Trump administration; add external risks that domestic monetary policy alone cannot counter.

Needonomics Perspective

The Needonomics School of Thought provides an alternative framework for understanding and addressing inflation. NST insists that neither monetary policy nor fiscal policy, in isolation, can provide lasting solutions. Instead, the focus must be on needo-consumption, particularly by the middle class.

What is Needo-Consumption?

Needo-consumption refers to the disciplined and rational consumption of goods and services based on needs rather than wants. Unlike Greedonomics, which promotes limitless consumption driven by desires, Needonomics advocates moderation, prioritization, and sustainability. For inflation, this means:

• Encouraging households to focus on essentials rather than conspicuous consumption.
• Promoting efficiency in the use of resources.
• Ensuring that consumption patterns align with sustainable supply-side capabilities.

Policy Reorientation under Needonomics

1. Reorient Inflation Targeting Framework

The inflation tolerance band must be gradually adjusted downward to 2–3%, aligning with global best practices. Such a move would anchor inflationary expectations more effectively while signaling policy commitment to stability.

2. Integrating Food Inflation into Policy

The RBI should not exclude food inflation but instead collaborate with the Ministry of Finance and Agriculture to address supply-side bottlenecks. Inflation management should involve coordinated action between fiscal and monetary authorities.

3. Supply-Side Reforms

Governments at all levels must adopt proactive measures to address supply constraints in food and energy markets. Investments in cold storage, logistics, renewable energy, and modern agriculture can mitigate episodic spikes.

4. Enhancing Statistical Measurement

Reforms in inflation measurement are overdue. A more comprehensive framework that reconciles CPI and WPI, adopts chain-based indices, and integrates real-time data can improve accuracy and policy credibility.

5. Linking Inflation Targeting to Product Market Efficiency

Inflation cannot be divorced from market structures. Ensuring fair competition, reducing monopolistic practices, and promoting efficient capital flows are essential for stable price levels. Needonomics insists on good input of policy instruments to yield great outcomes.

6. Middle-Class Welfare as Anchor

Since the middle class bears the brunt of inflation, inflation targeting must prioritize their welfare. Policies that protect their purchasing power will sustain aggregate demand, encourage savings, and promote long-term growth.

Needonomics vs. Conventional Approaches

Conventional monetary tightening often sacrifices growth for inflation control, disproportionately affecting job creation and investments. Fiscal tightening, on the other hand, reduces government support for welfare and infrastructure.

Needonomics, by focusing on rational need-based consumption and coordinated policies, offers a more balanced approach:

• It avoids the excesses of Greedonomics, where unchecked demand fuels inflation.
• It emphasizes harmony between state, markets, and households.
• It seeks to stabilize inflation without derailing economic growth.

Way Forward

The future of inflation targeting in Bharat lies not in rigid adherence to outdated frameworks but in reorientation aligned with the realities of the Indian economy. The following steps can create an effective and inclusive inflation management system:

1. Review and revise the RBI’s inflation targeting framework with transparency and stakeholder participation.
2. Adopt a joint approach between RBI and the Ministry of Finance, ensuring monetary and fiscal policies act in concert.
3. Set up specialized agencies tasked with price stability, equipped with modern tools and data systems.
4. Promote Needonomics in public discourse, encouraging households and businesses to align consumption with needs rather than wants.
5. Address external risks through diversified trade policies and prudent management of capital flows.

Conclusion

Inflation is not merely a macroeconomic statistic but a lived experience for households, particularly the middle class. The present inflation targeting framework in Bharat, while institutionally sound, suffers from critical blind spots. The Needonomics School of Thought provides a fresh lens to address these gaps by emphasizing needo-consumption, coordinated policymaking, and supply-side efficiency. By adopting a 2–3% inflation tolerance band, integrating food inflation into policy, improving measurement systems, and prioritizing middle-class welfare, Bharat can build a resilient framework for price stability. Inflation targeting, reoriented through the principles of Needonomics, can ensure not only economic stability but also social justice and sustainable development. In the end, taming inflation requires more than technical adjustments—it demands a moral reawakening in how societies consume, produce, and govern. Needonomics offers precisely that vision: moderation, balance, and inclusiveness as the pathway to prosperity.