ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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Red Herring of Fiscal Deficit

Red Herring of Fiscal Deficit THE annual report of the Reserve Bank of India, released last week, reviews developments in the major sectors of the economy, but it is the central bank's assessment of the monetary and credit situation which naturally calls for the closest attention. Here, it may appear, the bank has been relatively frank. Monetary expansion in 1988-89, it is admitted, at Rs 28,571 crore (17.6 per cent) was substantially larger than in 1987-88 (Rs 22,027 or 15.7 per cent). The rate of monetary expansion, it is also suggested, was higher than what was warranted even by the extraordinary near-10 per cent growth in real GDP in 1988-89 (the result largely of a 23 per cent rise in agricultural production after the decline of the preceding two years) and could thus be taken to have contributed to the robust pace of inflation during the year (7.5 per cent as measured by the wholesale price index and 9 per cent by the consumer price index).

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