The RBI Governer Y V Reddy is worried about the fiscal deficit as a percentage of gross domestic product of India which continues to be among the highest in the world. It is well known that the RBI pegs the rupee to the dollar in a window that is seen as comfortable to its policy and to the Political masters, while constantly stating that they are for an orderly market. The slow realisation that RBI can do little to curb inflation if the fiscal deficit worsens is worrying its Governor. The balancing act is getting more difficult for the RBI, as rupee has fallen amost to 43 to the dollar from the recent 39 due to Oil Cos dollar purchases and Fiis that have constantly sold stocks and rupees, both in the cash and futures markets.
Little wonder, as this government has in recent months put Fiscal responsibility to the wind in an election year with doles, pay hikes and freebies like the NREGS and loan waivers, and the fms estimates are going horribly wrong, both on the inflation front and on the Tax collection front, now that the Us is facing a slowdown and possible recession and the world is facing uncertainties due to oil.
The Inflation figures and not that accurate and there is international suspicion that these numbers are being fixed. Worse the gap between early figure and the actual figure of Inflation is widening. India’s inflation rate may be revised to 10 per cent from the latest estimate of 7.82 per cent as data for prices of different commodities is updated, London-based publication The Economist has said. India revised inflation figures for the week ended March 15 to 8.02 per cent from the earlier estimate of 6.68 per cent.
I had estimated this in many of my posts right since the Budget 2008.
So expect more inflation and more prise rise and a possible increase in interest rates due to government borrowings and worsening conditions.