At over 8 per cent, inflation has been consistently high over the past few months. And that probably is the biggest challenge for finance minister Pranab Mukherjee, who faces the difficult choice of choosing between a strategy aimed at containing high prices or sustaining the growth momentum. Experts say, presenting a non-expansionary Budget, which means a fiscally tight Budget with higher taxes on commodities and services, is the only way out. But a look at the government's accounts and policy compulsions might render it difficult. The Reserve Bank of India (RBI) would like the government to adopt a credible fiscal consolidation plan. That is important because monetary policy framed by the central bank is effective when there is fiscal consolidation. “The government must adopt a credible fiscal consolidation plan, which is important because monetary policy is most effective when there is fiscal consolidation,” said RBI Governor D Subbarao.
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