The second was the enactment of the Fiscal Responsibility and Budget Management (FRBM) Act which, among other things, prohibited the Reserve Bank from financing government debt in the primary market with effect from April 2006. 45. Like in most countries, in India too, fiscal stimulus was part of the crisis response and monetary policy had to acquiesce in elevated government borrowing.
Going forward, the challenge for the Government is to continue the fiscal consolidation that started with this year’s budget and for the Reserve Bank to regain the space to conduct monetary policy free of fiscal compulsions. 46.