Finance Minister Nirmala Sitharaman’s giant tax cut will lead to corporate profits rising by 30 percent. The stock markets celebrated this profit boost with a six percent rise which is the single day biggest point gain in the history of Dalal Street. On the other hand bond markets have seen probably their biggest fall in recent times, indicating that the fiscal stimulus comes at a cost, the cost of higher yields. Is this a big price to pay? Not necessarily.

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The government can aggressively disinvest given the higher share prices and thus reduce the now higher fiscal deficit. The Reserve Bank of India (RBI) can buy more government bonds and smother interest rates in the economy. Given the general weak deflationary situation in India and the world, such a monetisation of the deficit may not lead to any ugly rise in prices.

First Published:Sept 23, 2019 12:14 PM IST