The Government of India and Reserve Bank of India signed a Monetary Policy Framework Agreement on 20th February, 2015. The objective of monetary policy framework is to primarily maintain price stability, while keeping in mind the objective of growth. As per the agreement, RBI would set the policy interest rates and would aim to bring inflation below 6 per cent by January 2016 and within 4 per cent with a band of (+/-) 2 per cent for 2016-17 and all subsequent years. The proposed reduction in fiscal deficit to 3.9 per cent of GDP in Budget Estimates 2015-16 is designed with a mix of reduction in total expenditure as percentage of GDP and improvement in gross tax revenue as percentage of GDP.

 This was stated by Shri Jayant Sinha, Minister of State in the Ministry of Finance in written reply to a question in Rajya Sabha today.

Price stability central to new monetary policy framework, with RBI setting policy rates to target inflation bands and support growth. The Monetary Policy Framework Agreement sets price stability as the primary objective while considering growth; the Reserve Bank of India will set policy interest rates and operate with specified medium term inflation targeting bands to guide rate-setting. Complementary fiscal consolidation is described in the Budget Estimates, aiming to reduce the fiscal deficit through lower total expenditure as a share of GDP and improved gross tax revenue as a share of GDP.