India's fiscal and monetary framework: growth in an opening economy

Since a crisis is a shock impinging on a system, the response can be used to deduce aspects of the system's structure. Analysis of the crisis and recovery suggests aggregate supply in India is elastic but subject to upward shocks. This has implications for cyclical policy and for fiscal consolidation. Both monetary and fiscal policy should identify measures that would reduce costs, while avoiding too large a demand contraction. Specific policies are identified and Indian policies evaluated.