Trust these numbers: Financial Express: 17th February 2009

The UPA government needs to be applauded for doing the right thing by doing little in the interim budget and letting the new government take the necessary steps later in July.
The most interesting implication of this Budget relates to the expectations of the overall GDP growth rate. Nominal GDP growth rate in FY09 was assumed to be 15.7% which can be broken up into 7.1% real GDP and 8.6% inflation. However, for FY10, the nominal growth rate is taken to be 11.1%. We are either expecting stagnant real GDP growth of 7% with 4% consistent inflation or lower GDP growth with higher inflation. These numbers need some deeper reflection.
There are some other clues that can be taken from the Budget. The first is that the FRBM has been given a go-by and it will probably be so for sometime now. The fiscal deficit ratio of 6% registered for FY09 actually takes us back to 2001-02, when this ratio was 6.2%. The revenue deficit ratio of 4.4% for FY09 goes back to FY03 when a similar level was attained. The deviation of 3.5% of GDP for the revenue and fiscal deficit from the budgeted numbers can actually be termed as the fiscal cost of the global financial crisis for the Indian government. In monetary terms this is around Rs 190,000 crore which would be an equivalent of $ 40 bn. This would be the real cost of the fiscal stimulus programme that the government has incurred to keep the growth process afloat at 7%. The cost is much lower than what the western economies have had to incur in the form of bail-outs of institutions.
Another thought that comes from the budget numbers is that government borrowing is going to be high even next year. For FY08, borrowing was Rs 1,31,768 crore, which rose to Rs 2,61,972 crore in FY09. For FY10, the number is to increase to Rs 3,08,647 cr. This higher number means that there will be much more pressure on the banking system for funds. Deposit growth at 18% (which could be achieved in FY09) would mean an increment of around Rs 6.8 to Rs 7 lakh crore during FY10. If government borrowing is going to be an increment of Rs 3 lakh crore, then the non-government sector would have only Rs 3.8-4 lakh crore left. The credit-deposit ratio will be under pressure and there could be a problemof supply of funds.
Related to the above aspect, is the outlook for interest rates. There would definitely be an increased demand for funds from both the government and private sectors given the large infrastructure projects that have been envisaged. The RBI will have a job on hands in supplying liquidity to the system through CRR cuts, which will be necessary to control the demand for funds. This will put a halt to the regime of lowering interest rates which had started a couple of months back.
Lastly, with demand for funds picking up and investment growing, which is the assumption here, demand-pull inflation which was missing in the last bout of high inflation, could surface. Hence, while the cushion of a good rabi crop and possibly kharif this year, could control cost-push forces in an era of benign oil prices, higher domestic growth can engender these triggers. Hence, inflation will be an issue on hand for the RBI and government. The problems are definitely not going to end anytime soon, and it is going to be a very challenging year again for all, especially the next government.