Hopefully, we won't become a basket case.

"PM Narendra Modi"s key economic advisers have proposed an investment-led stimulus by the government to help revive the economy. The proposed massive spending on infrastructure, along with an upgrade of urban facilities, is expected to create durable assets and jobs, and generate demand for cement and steel." They advise the prime minister to ignore fiscal deficit this year to get the economy growing again. Starting with Moody's which expects our economy to contract by 3.1% this calendar year, the IMF projecting a contraction of 4.5% this financial year, India Ratings and Research predicting a shrinkage of 5.3% this fiscal, to former finance secretary Subhash Garg opting for a round number of 10%, there seems to be a consensus that India will experience a deep recession, which is economic contraction for 2 successive quarters, in 2020-21. A report from India Ratings says that fiscal deficit will shoot up to 7.6% this financial year, and to a total of 12.1% with the addition of 4.5% deficit of states. Economic contraction means less revenue from taxes so where will the money come from? The Reserve Bank (RBI) will have to resort to deficit monetization, which means printing notes to finance government spending, wrote Vrishti Beniwal and Andy Mukherjee. The government will need to borrow at least Rs 12 trillion till 31 March. With nowhere to lend banks have already loaded up with government bonds to the tune of Rs 41.4 trillion. The RBI is cautious because in the 1980s, routine deficit monetization led to double digit inflation. What about now? "Inflation as measured by the wholesale price index (WPI) contracted 1.81% in June." Inflation of food articles was 2.04% but prices of fuel and power fell by 13.60%. Prices of manufactured products, which have a weightage of 64.97%, in WPI increased by 0.08%, not enough to make up the steep fall in prices of fuel and power, which have a weightage of just 14.91%. "Inflation, as measured by the consumer price index (CPI), was 6.09% in June, up from 5.84% in March, the last official headline inflation number released by the government , even as food inflation cooled to a nine-month low of 7.87% in June from 9.2% in May." Food and beverages comprise over 45% of CPI. Why did the retail price of food rise by 7.87% when wholesale prices rose by just 2.04%? Transport is a large cost of food and the retail cost of fuel has increased because of soaring taxes, while fuel prices have fallen in other Asian countries. The Indian basket of crude was below $20 per barrel till April, compared to over $80 per barrel following the subprime crisis in 2008. It has been mostly below $60 since 2015. Real interest rates are negative which means savings are losing value. The RBI is buying dollars which increases the volume of rupees in the market, which puts downward pressure on interest rate and increases money supply. Will the government throw caution to the winds as advisers suggest and will the RBI print sacks-full of notes to finance spending? The rupee may tank and inflation shoot up. Better to bury head in sand and hope.