Will things get out of hand? Most likely.

"The Reserve Bank of India's (RBI) Monetary Policy Committee (MPC) kept the repo rate unchanged in the August policy." The repo rate, which forms the basis of bank lending and what interest we get on our savings, has been kept at 4%. "Inflation, as measured by the consumer price index (CPI), was 6.09% in June", which means real interest rate is negative, hurting savers while benefiting the largest borrower, the government. "The MPC expects the headline inflation to remain elevated in Q2FY21 (July-September quarter) and sees it easing in the second half of the financial year." Given that oil and commodity prices are down and consumer spending was lower in July, as shown by the goods and services tax (GST) collections, "One would expect inflation to be well within limits, if not actually slip into the deflationary zone," wrote Prof Tulsi Jayakumar. Food and beverages comprise around 46% of the CPI index and this saw a fall of 0.26% in the 6 months from January to June 2020. A recent study of emerging market economies (EMEs) found that, "falling output, oil prices, financial conditions and exchange rates as the variables most likely to impact inflation risks". The price of crude oil maybe low, but eye-watering taxes are putting a brake on economic recovery by raising prices of petrol and diesel to almost record levels. Taxes were 275% of base price in June. Exchange rate depreciation is likely to have "a significant effect on inflation. The Indian rupee had depreciated 6% by July since the beginning of the year", wrote Jayakumar. The RBI has been buying dollars which tends to push the rupee exchange rate down and inflates the amount of rupees in banks. "India's foreign exchange reserves climbed by $4.99 billion to touch a new lifetime high of $522.63 billion in the week to July 24, helped by currency accretion and increase in the value of gold reserves, RBI data showed on Friday." "With economic activity sharply impacted by the Covid-19 pandemic, bank credit growth will likely nosedive to a multi-decade low of -0.1% this fiscal, down from an estimated 6% in the last, a Crisil estimate shows." That means, Crisil is predicting a complete absence of new projects which means a slump in employment. The government must spend 5-10% of GDP to stimulate the economy, feels SA Aiyar.  "The fiscal deficit for April to June touched Rs 6.62 trillion. It's already at 83.2% of budgeted fiscal deficit for the current financial year," wrote Vivek Kaul. If the government increases borrowing it will suck liquidity out of banks and harden interest rates. If the RBI prints money to finance government spending inflation could soar to 12% and the rupee could lose a quarter of its value, calculated Rabobank. Instead the RBI is allowing banks to restructure loans, a shady practice known as 'evergreening', which has resulted in non-performing assets (NPAs) or bad loans set to rise to 14.7% if things go wrong. Most probably will.