The PM in his reply to a Parliamentary Question on the availability of US Dollars on the domestic foreign exchange market, listed down some of the measures taken to address these challenges, namely the medium term to long term measures of “Government’s investment-led and production-oriented growth strategy, including import substitution, strengthening food security, expanding renewable energy and boosting exports, is expected to progressively reduce the demand-supply imbalance.”
No mention is made of the short term immediate measures , namely the measures to rein in the fiscal deficit.
Why ?
Because of the lack of meaningful progress in reducing the fiscal deficit; the consolidated budget deficit, even before the backtracking on the means test, remained unchanged around 5.7% of GDP in both FY2025-2026 and FY 2026-2027.
This Govt has to do more in reducing the fiscal imbalance which is being translated into a higher external deficit-thus a serious shortage of FX- a weaker rupee, and higher inflation.
The persistent shortage of foreign currency, and continued rupee weakness follows from the economy’s twin imbalances, namely, a wide fiscal deficit and a large external deficit.
Further downward pressure on the rupee will fuel higher import costs and drive up inflation. Unless the fiscal deficit is further reduced and exports are revived, the country will continue face the cycle of a shortage of FX, of currency depreciation and high inflation.
