Former RBI Governor YV Reddy says that monetary policy cannot ignore impact on aggregate demand and current account deficit. He said that the policy has to take care of inflation as well. "Now, if you don't impose excise duty then you'll have more fiscal deficit, which is also going to add to inflation. There are different ways and the underlying inflationary pressure, you don't increase the diesel price, then it may not show up. But, it'll have to show up somewhere else because somebody else will have to pay for it. So in the ultimate analysis, if painful actions have to be taken, by postponing painful actions, you are adding to under lying inflationary pressure which doesn't show up. My own sense is that the underlying inflationary pressure in India now is a lot more than what many people appreciate," he explains.
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