One of the biggest challenges to deal with the Reserve Bank of India (RBI) in the coming days is a reversal of fiscal policy measures without any run over effects.
Fiscal aids given by governments are likely to put pressure on public debt over a period of time, having consequences on inflation and within various sectors of the economy.
"Unwinding of fiscal stimulus in an orderly manner is one of the major challenges going forward," RBI governor D Subbarao said in his statement to the International Monetary Fund on Saturday.
Fiscal stimulus packages have already above doubled the fiscal deficit projected for FY09 (Apr-Mar) from less than 2% of GDP to almost 3%.
Higher deficit financing tends to have an inflationary impact on the economy. Moreover, a reversal of tax sops could upset the pace of growth in the real sector. Therefore, turnaround of fiscal policy needs to be handled carefully.
Fiscal aids given by governments are likely to put pressure on public debt over a period of time, having consequences on inflation and within various sectors of the economy.
"Unwinding of fiscal stimulus in an orderly manner is one of the major challenges going forward," RBI governor D Subbarao said in his statement to the International Monetary Fund on Saturday.
Fiscal stimulus packages have already above doubled the fiscal deficit projected for FY09 (Apr-Mar) from less than 2% of GDP to almost 3%.
Higher deficit financing tends to have an inflationary impact on the economy. Moreover, a reversal of tax sops could upset the pace of growth in the real sector. Therefore, turnaround of fiscal policy needs to be handled carefully.
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