The government is done with the fiscal policy for 2009-10, at least for now. It is over to the Reserve Bank of India to coordinate its monetary policy such that the objectives of economic stimulus are achieved. And what are these? Low interest rates and lower inflation, so that growth gets a boost. Does it matter if the borrowing target is a humongous Rs 400,000 crore? The RBI’s mild-mannered governor, Duvvuri Subbarao, promises to ensure a least disruptive borrowing schedule. That is easier said than done when in just two days since Finance Minister Pranab Mukherjee revealed in Budget 2009-10 the government’s mind on its borrowing plan, yields on 10-year government paper have jumped 20-25 basis points to almost 7 per cent. And analysts do not rule out more pressure that may push the yield further to 7.5 per cent in the coming weeks.

If Mukherjee was categorical about anything in his 27-page Budget speech, it was about the country’s economic growth rate — 7 per cent this year, and 8-9 per cent as soon as possible. To prevent a sharp slowdown, the United Progressive Alliance government had provided a fiscal stimulus equivalent to 3.5 per cent of the gross domestic product through three packages even before the country went to polls. The Budget estimates the deficit for 2009-10 to be Rs 4,00,996 crore, or 6.8 per cent of the GDP, Rs 74,481 crore more than the deficit as per the revised estimates for 2008-09. Mukherjee has indeed kept his word and ensured continuity of the government’s economic strategy by providing a fiscal stimulus of another 0.8 per cent of the GDP in his regular Budget on July 6.

... contd.