RBI's external rate panel recommends retaining headline inflation as target for India

A suggestion was made Ain the government's official annual economic report last month to target inflation excluding volatile food prices, which are driven more by supply shortages.

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The idea has ignited a debate in India over the appropriate target for monetary policy.

India adopted the inflation targeting framework in 2016, setting a 4% headline inflation target for the central bank's rate setting panel.

The target has limited interest rate cuts as rising food prices have kept headline inflation above 4%, even though core inflation has fallen to record low levels of around 3%, prompting analysts to call on the Monetary Policy Committee (MPC) to focus on the latter.

Shashanka Bhide, an external member of the Reserve Bank of India's MPC, said it is necessary to look at the whole consumption basket to gauge the actual price pressures in the economy.