ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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UTTAR PRADESH-Calculations Gone Awry

this had been made possible by "the fundamental reform announced in the union budget 1994-95 and the agreement subsequently reached between the government and the Reserve Bank to delink automatic monetisation from the budget deficit". This 'fundamental reform', made possible only by unprecedented portfolio inflows of over Rs 30,000 crore in the second half of 1993-94 and the first half of 1994-95, could not be sustained beyond one year. The government read in the large capital inflows false signals to borrow massively in the market and the RBI complacently assumed that its agreement with the government on limiting and eventually phasing out the use of ad hoc TBs was already a success. However, once the portfolio inflows slowed down and the financial assets showed no significant rise, these facile expectations were belied and the much-vaunted agreement between the finance ministry and the RBI was frequently breached.

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