There is no need to hit the panic button. This is not 1991. But the new Union budget is being framed against the backdrop of a stuttering world economy, and signs of domestic pressures. There are ample indicators of the key risks in the year ahead. The fiscal deficit is being funded by domestic savings and there are signs that it is crowding out private investment; the current account deficit is funded with foreign capital, but the worrisome drop in foreign direct investment in recent quarters means that India is increasingly dependent on volatile portfolio and short-term debt flows; and high inflation is a clear sign that the lack of meaningful reforms since 2004 has made the economy structurally constrained to increase aggregate supply, with the output gap shrinking too early in the business cycle.
Lets wait and see!
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