Abstract

This paper brings analytical economics to bear on some of the central economic policy challenges faced by contemporary India; monetary policy for controlling inflation, central bank exchange rate interventions and fiscal policy for promoting growth. Government, by giving orchestrated guarantees for infrastructure can ensure that multiple projects come up raising the probability of success of all these projects. India has responded to inflation by using fiscal contraction, liquidity tightening and monetary policy. By using a suitable strategic technique - called "schedule intervention" - it is possible for the central bank to influence the exchange rate without affecting foreign currency reserves.