Headline inflation impacts Indians directly and should be retained as the target for monetary policy rather than switching to core inflation, external members of the central bank's rate panel told Reuters.

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

"If we use a partial basket for a target then it would not reflect the overall price pressures and if the target is the core alone, then it should in some way capture the trend of food inflation or fuel inflation if not the volatility," Bhide said in an interview with Reuters.

The MPC - which comprises three Reserve Bank of India officials and three external members appointed by the government - has held the key repo rate steady at 6.5% for nine straight meetings now, citing persistently high food prices.

Growth in India's economy is seen slowing to 7.2% in the current fiscal year from 8.2% last year.

Jayanth Varma, a second external MPC member, who has voted for a 25 basis point rate cut for four straight meetings said that while he supports rate cuts, a shift in target when food prices are high is not appropriate.

"One of the key questions for the MPC is whether high food inflation would spill over into core inflation, and this concern would remain if the target were changed to core," Varma said in a separate interview with Reuters.

Ashima Goyal, the third external member, who has also voted for a cut for two meetings now said research has shown the headline inflation rate moves towards core inflation in India over the longer term.

"Headline is the inflation that impacts the public more. But I think the MPC should pay more attention to core inflation," she said.

The current rate panel has had to contend with headline inflation being above the 4% target for most of their tenure due to high food and fuel prices.

Goyal said that if the MPC was targeting core inflation, it would have opened up room to lower interest rates. Varma differed, saying the numerical value of the core inflation target could have been different, so it was not possible to say with certainty where the repo rate would be.

(Reporting by Swati Bhat; Editing by Kim Coghill and Susan Fenton)