The magical disappearance of Rs 17.49 trillion.

"The Reserve Bank of India (RBI) kept its policy rates unchanged on Wednesday, as was widely expected, and cut its inflation forecast for the rest of the financial year, citing a sharp fall in crude oil prices and food 'deflation'." Policy rate is 6.5% at present. The Monetary Policy Committee (MPC) sharply lowered its inflation forecast to 2.7% to 3.2% for the second half of the financial year, ending 31 March. Retail inflation fell unexpectedly to 3.31% in October, the lowest in 13 months. The RBI also decided to lower the Statutory Liquidity Ratio (SLR) by 25 basis points every quarter until it reaches 18%, from 19.5% at present. SLR is a proportion of deposits that banks are required to hold by the RBI as reserves, as a kind of safety net. It is held in gold, cash or government securities. Yields on 10 year government bonds fell from 7.573% to 7.441%, which means bond prices went up. Why? If banks are to hold fewer government bonds, which means lower demand, their prices should drop. The Manufacturing Purchasing Managers' Index (PMI) "strengthened from 52.2 in September to 53.1 in October" which should indicate stronger demand, but the RBI said that consumers are cutting expenditure because of fears about jobs. Consumer confidence dropped from 94.8 in September to 93.9 in October. Manufacturing PMI for November was even higher at 54 because of a rise in "domestic and foreign demand", while Services PMI for November was at a 4-month high of 53.7. Unemployment reached the highest level in two years according to the Centre for Monitoring Indian Economy (CMIE) and 92% of female workers and 82% of male workers earn less than Rs 10,000 per month. Only 42.4% of adult workers are interested in working. Although growth of GDP fell to 7.1% in the second quarter we are still growing faster than China which grew at 6.5% over the same period. So, banks are to buy fewer government bonds but their prices went up, manufacturing and services are booming but consumer demand is dropping, we are the fastest growing major economy of the world but unemployment is increasing, and Prime Minister Modi promised a 50% higher Minimum Support Price for agriculture but the RBI reports a "deflation" in prices of food. The RBI must be right about the fall in agricultural earnings because farmers are protesting again about their wretched condition. Why? The government earned a windfall Rs 11 trillion by high taxes on fuel in the last 4.5 years. It has also borrowed Rs 6.49 trillion already, as against the proposed fiscal deficit of Rs 6.24 trillion in the budget. If the government spent such a humongous amount of money it should have been inflationary. So where has it gone? They are true magicians.