An Unhealthy Year provokes an Unhealthy Practice!
Our Fiscal Deficit was Rs 304000 crs for the Eleven months at February 2009 and is expected to cross even revised estimate of Rs 326515 crores for the year ended March 31,2009…6% of our GDP !…When we began FY 09,the first estimate of the Fiscal Deficit was just 2.5% of GDP at Rs 133287 crs
In earlier Blogs on February 16 and 17,2009 I’ve spelled out the danger of debt and the Fear of Monetisation to fund this Rising Deficit for FY 09 and even FY 10
In today’s DNA Money,the headline confirms that the Monetisation of this Deficit is a very dangerous and unhealthy Rs 150000 crs ! That’s 45 % of the Total Deficit funded by printing New Currency Notes !
If this practice is sustained into FY 10,and this is very likely to be the case as the FY 10 Fiscal Deficit too is estimated to be Rs 332835 crs too !,the Impact on the Rupee and on Inflation will be felt,in that the Rupee will come under pressure and Inflationary pressures will be fueled in the coming Year.
This will lead to pressure on Interest rates too to keep pace with Inflation…and that’s ironic as RBI has eased rates and wants the Banks to follow….In fact the RBI Governor is meeting up with Bank Heads today to urge them to cut rates at a time when the Government itself is also borrowing heavily to fund the Deficit !
Stock markets continue to play their own Volatile Game…Down 320 Points in the morning ,they are up nearly 200 points towards closing