New Delhi, Nov. 2 -- Policy making usually involves trade-offs. Monetary policy has to choose between inflation and growth. Fiscal policy must balance prudence with deficit spending. Currency policy faces a choice between supporting the exchange rate and protecting foreign exchange reserves. The more uncertain the times, the harder it becomes to balance competing objectives. Today, more than ever, policy making is as much art as science, and policies must remain flexible and adaptable to changing circumstances.

Among the many challenges facing India, three difficult trade-offs stand out: reconciling affordability with efficient, free-market price determination; balancing the interests of savers and borrowers; and attracting foreign capit...