BPSC 70th CCE Prelims General Studies · Question 117 of 143

Correct — C, 4.5%. The Monetary Policy Committee's resolution of 5 April 2024, the first policy of financial year 2024-25, states it exactly: 'Taking into account these factors and assuming a normal monsoon, CPI inflation for 2024-25 is projected at 4.5 per cent with Q1 at 4.9 per cent; Q2 at 3.8 per cent; Q3 at 4.6 per cent; and Q4 at 4.5 per cent. The risks are evenly balanced.' The same policy kept the repo rate at 6.50 per cent, with the standing deposit facility at 6.25 and the marginal standing facility and Bank Rate at 6.75, and projected real GDP growth for 2024-25 at 7.0 per cent. Read the number in context and it stops being an arbitrary figure: RBI's statutory mandate is CPI inflation of 4 per cent within a band of plus or minus 2 per cent, so a projection of 4.5 says the Committee expected inflation to end the year inside the band but still above the target, which is why it held the rate and stayed 'focused on withdrawal of accommodation'. There is a timing point that a careful student should notice, and it cuts in favour of this answer rather than against it. Candidates sat this paper on 13 December 2024, one week after the MPC of 4 to 6 December 2024 had raised the projection: that resolution puts 'CPI inflation for 2024-25 at 4.8 per cent with Q3 at 5.7 per cent; and Q4 at 4.5 per cent', after headline CPI surged above the upper tolerance level to 6.2 per cent in October, and it cut the growth projection to 6.6 per cent. So the most recent RBI number on the day of the exam was 4.8 per cent — and 4.8 is not on the page. The setter was working from the projection RBI had carried since April, and 4.5 is the only option that corresponds to any RBI forecast for that year.

• (a)4.1% — Not an RBI projection for 2024-25 on any policy date. It is close enough to the 4 per cent statutory target to look plausible to a candidate who half-remembers the target rather than the forecast, and that is the whole design of the option — the target and the projection are different numbers, and the question asks for the second.
• (b)5.0% — Corresponds to nothing RBI printed for the year. It sits between the 4.5 per cent April projection and the 6 per cent upper tolerance limit, which makes it a comfortable-looking middle guess, but the MPC's projections for 2024-25 were 4.5 per cent from April and 4.8 per cent from December, and neither rounds to five.
• (d)5.5% — The highest option and the furthest from the mark. Actual monthly prints did rise to 6.2 per cent in October 2024, so a candidate recalling the news flow rather than the forecast may reach for a high number — but a monthly outturn is not an annual projection, and RBI never forecast 5.5 per cent for the year as a whole.

India has run a formal inflation-targeting framework since 2016. The Reserve Bank of India Act, as amended, sets the inflation target the Government notifies in consultation with RBI — 4 per cent CPI inflation with a tolerance band of 2 percentage points either side — and creates the six-member Monetary Policy Committee to decide the policy rate by majority. The Committee meets at least four times a year, in practice six, and each resolution carries three things a student should extract: the rate decision, the stance, and the quarter-by-quarter projections for inflation and growth. Two vocabulary points decide many questions. 'Headline' inflation is the full CPI basket, while 'core' inflation excludes food and fuel — in February 2024 headline was 5.1 per cent while core had fallen to 3.4 per cent, one of the lowest readings in the series. And the operating rates form a corridor: the repo rate in the middle, the standing deposit facility rate 25 basis points below it as the floor, and the marginal standing facility rate 25 basis points above as the ceiling. Note too that the measure itself changed: India's headline inflation was reported on the Wholesale Price Index for decades, and CPI became the target variable only with the 2016 framework.

Questions of this kind reward a specific reading habit rather than general awareness, because a policy resolution is a short document containing exactly the sentence an examiner will lift. Whenever an MPC statement is released, note four numbers — the repo rate, the stance, the CPI projection for the year, and the GDP projection for the year — and note the date, because all four are revised through the year. Here the revisions are the whole difficulty: RBI projected 4.5 per cent for 2024-25 in April, retained that figure through the middle of the year, and moved to 4.8 per cent in December after the October spike. Two further discriminations are worth practising. First, separate the target from the forecast: 4 per cent is the target, the band runs from 2 to 6, and the forecast is a different number that moves. Second, separate a monthly print from an annual projection: October 2024's 6.2 per cent was a single month above the tolerance ceiling, not a forecast for the year. A candidate who keeps target, band, monthly print and annual projection distinct will read an option set like this one correctly even without recalling the exact figure, because only one option can be a plausible annual projection sitting just above target.

• MPC resolution of 5 April 2024, verbatim: 'assuming a normal monsoon, CPI inflation for 2024-25 is projected at 4.5 per cent with Q1 at 4.9 per cent; Q2 at 3.8 per cent; Q3 at 4.6 per cent; and Q4 at 4.5 per cent'
• The same April 2024 policy kept the repo rate at 6.50 per cent, the standing deposit facility at 6.25 per cent and the marginal standing facility and Bank Rate at 6.75 per cent, and projected real GDP growth for 2024-25 at 7.0 per cent
• India's statutory objective is CPI inflation of 4 per cent within a band of plus or minus 2 per cent
• MPC resolution of 6 December 2024, a week before this exam: CPI inflation for 2024-25 revised to 4.8 per cent, with Q3 at 5.7 per cent and Q4 at 4.5 per cent, and real GDP growth cut to 6.6 per cent
• Headline CPI inflation surged above the upper tolerance level to 6.2 per cent in October 2024, from 5.5 per cent in September and sub-4 per cent prints in July and August
• Headline inflation covers the whole CPI basket; core inflation excludes food and fuel, and stood at 3.4 per cent in February 2024 against a headline of 5.1 per cent

• Answering with the 4 per cent target instead of the projection; the target is fixed by notification, the projection changes at every policy
• Treating a single month's CPI print as the year's forecast — October 2024's 6.2 per cent was a monthly outturn, not a projection
• Forgetting that projections are revised; RBI's figure for 2024-25 was 4.5 per cent from April and 4.8 per cent from December

BPSC lifts a single number straight from the most recent policy document and offers four near-neighbours, so the preparation is to keep a short table of the current policy rates and projections with their dates attached. UPSC does not ask the number; it asks the machinery — what the repo rate means, how inflation is measured, which body sets the target — so the same news has to be converted into concepts rather than memorised as figures.

• practice — not a real PYQ

  The inflation target for India, notified under the Reserve Bank of India Act, is

  • (a)4 per cent CPI inflation with a band of +/- 2 percentage points
  • (b)5 per cent CPI inflation with a band of +/- 2 percentage points
  • (c)4 per cent WPI inflation with a band of +/- 2 percentage points
  • (d)6 per cent CPI inflation with no band

  Answer(a) 4 per cent CPI inflation with a band of +/- 2 percentage points — so the tolerance range runs from 2 to 6 per cent, and the target variable is CPI, not WPI.

• practice — not a real PYQ

  In the Reserve Bank of India's liquidity adjustment facility corridor, which rate forms the floor ?

  • (a)Marginal standing facility rate
  • (b)Bank Rate
  • (c)Standing deposit facility rate
  • (d)Repo rate

  Answer(c) Standing deposit facility rate — it sat at 6.25 per cent against a repo rate of 6.50 and an MSF rate and Bank Rate of 6.75 in the April 2024 policy, so the SDF is the floor and the MSF the ceiling.