Too much money chasing too few products. It's just what doomsayers need to ring the alarm, especially once it shows up as inflation, as measured by India's Wholesale Price Index (WPI). Just how accurately this creaky old index tracks the chase in these days of booming services, however, gets less attention than how much damage could be done to the image of a government that promises to deploy fine economic brains to achieve 'equitable growth'. Inflation hurts the poor most, everybody knows, though price instability has broader long-term economic costs too (such as resource allocation distortions).

Thus, barely had wholesale inflation breached the 8 per cent mark in August, that India saw rapid-fire action on the fiscal front. Duties were slashed on petroleum products, steel and edible oil. And as inflation began to ease, the government's intervention instincts only seemed to sharpen. This, be warned, is the real point of alarm.

Sure, the sectors have been rather nicely selected, being subject to gross intervention on a global scale that mocks the very idea of 'free market' forces. But why should India let its fiscal policy-which ought to rest on canons that hold steady over the years-become an artificial instant-use tool to meddle with the momentary ebbs and flows of money? If inflation were to plummet or turn negative, would duties be raised?

Okay, maybe it's an oversimplification to think of just the money chase; inflation could have specific 'cost push' causes that can be isolated and micro-managed. But even on this premise, there's little conclusive evidence to argue that these causes are anything more enduring than blips that will play themselves out, given just a few more months perhaps. So to go about changing duty structures is still an over-reaction. Unless it's all a game of signaling more than effecting much.

Even so, the one big fiscal thing the government can do for price stability is keep its own deficit in check. And then do what can be done. The non-inflationary use of foreign exchange reserves to ease infrastructural constraints, for example, is a smart idea. A good way to keep money from turning frantic in its chase of goods, is to enable a structural smoothening of the economy by attacking supply bottlenecks (and with quick force, regardless of the colour of the multibillions invested). The need: efficiency.

The rest of the job is ideally left to monetary policy-as set by an independent Reserve Bank of India (RBI). This is the tool that's supposed to make short-term adjustments to keep the economy humming. And indeed, the RBI has already responded to inflation by raising the Cash Reserve Ratio (CRR) of banks. Thus has it tightened money, ever so slightly, without resorting to an interest rate hike.

When the RBI's benchmark rate does go up, it ought to be in response to clear signs of 'demand pull' inflation, as economic activity starts roaring ahead. Even then, the tightening will probably be both agonised and modest, since no central banker would want the blame for playing spoilsport in an accelerating economy. The cost-of-capital being too high in India had once been a pet peeve of businessmen asked to turn globally competitive all of a sudden. It's gone now, and should stay that way.

To nudge growth upwards, it might be better to err on the side of a delayed rather than prompt tightening of monetary policy. This could call for the government's expending some of its political capital on tolerance of mild inflation, as investments get cracking. For business, the most reassuring part is that interest rates will never return to the earlier highs. Increasing competition has turned Indian banking efficient enough to eke out profits on lower spreads.

Competition, in fact, is quite bankable even as an inflation-muffler in other sectors. This could be the way forward. Competition-favouring reforms, accompanied as they would be by a burst of heady marketing activity, could help turn the chase around. Too many products chasing wallets.

Chasing ever-more ever-fattening wallets.