This UPA govt is landing up in a royal soup!
The UPA govts fiscal policy is a total mess, as the fin secretary has come out today and said that the govt will need to borrow a bit more than 52800 crores in the markets, that too after repeatedly assuring the media that it would stick to targets.
The govt has messed up on their calculations as they have seen a serious shortfall in small savings collections due to outflows in the last quarter. Postal deposits, MIS, NSE, KVP etc have seen a steady decline, as the interest rates of 8% given by most of them have become totally uncompetitive.
I also see an increase in fiscal deficit due to increase in oil subsidy because there is greater uncertainty in oil prices especially as winter draws in.
The govt will have to do some kind of window dressing in its books to plug the gap of 40 thousand crores it expected out of disinvestment which seems unlikely given the rapid decline in the markets. This might have a serious bearing on inflation and on value or rupee depending on how the RBI behaves in future.
The net result will be increase in short term rates, which directly hits valuations of bank treasury portfolios . Come Monday bank nifty will see a decline.
More govt mkt borrowings in an already very tight market going into the Diwali festival season will mean more yield on the ultra st or liquid mfs .