Recently, India has been experiencing difficulties in monetary policy. These difficulties point to deeper flaws in the monetary policy regime, and lend urgency to monetary policy reform. The MIFC report has the correct answer, in proposing an Indian Monetary Authority which is independent, transparent, focused and accountable. Inflation underlies the bond market and the bond market underlies all finance. An inflation targeting central bank stabilises inflation, and thus stabilises the bond market and all finance. Inflation targeting will provide the necessary anchor for stabilising India’s macroeconomy in an age of globalisation.

Many details remain to be worked out. How should inflation be measured? What is the analytical and operating framework for inflation targeting? The intellectual firepower for solving these questions is available and these details can be addressed. The big picture proposed in the MIFC report is the right one. The government should endorse this direction, and get going on solving these questions of detail.

How will the report get implemented? Suresh Tendulkar’s recent book on the political economy of reforms suggests that a consensus-driven incremental approach may have to be taken. The broad policy community will absorb the ideas of the book, and chip away at implementing them on a hundred fronts. India has proven ability to initiate policy processes to achieve far-reaching change — as was seen with public finance in the last 15 years. Such far-reaching change now needs to be brought about in financial and monetary policies.

A specific checklist of what is politically feasible today is: The Bond-Currency-Derivatives Nexus has been rightly emphasised by the book as the big missing link in Indian finance. The actions recommended in the report are entirely feasible. No further committees are required, and Parliament will support any work allocation between regulators that is proposed by the ministry of finance. In particular, the rupee-settled currency futures market needs to start immediately, to help firms cope with the micro effects of currency flexibility.

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