These factors, which impeded monetary transmission, were in play even before the crisis. A definite task going forward will be to address the impediments to monetary transmission. Fourth concern: fiscal stimulus – withdrawal and quality of adjustment Like in other economies, fiscal stimulus measures and weakening of economic activity have led to substantial increase in our fiscal deficits.
The Central Government’s fiscal deficit is budgeted to jump from 2.7 per cent of GDP in 2007-08 to 6.8 per cent in 2009-10; the combined fiscal deficit of the Centre and the states is expected to increase from 4.2 per cent of GDP to 10.2 per cent over the same period. These deficits are large and need to be rolled back.