Weigh the fiscal boost needed to get growth back to potential against its impact on bond markets and what the law allows
The Indian economy has been showing classic signs of an aggregate demand shock. Growth is below potential, core inflation is below target, and the current account deficit has shrunk. The broad consensus till recently was that monetary policy would do most of the heavy lifting to aid a demand recovery. The scope for interest rate cuts has reduced as headline inflation has drifted above the target set by the government for the Indian central bank.
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