THE EURO DEBT CRISIS

AND ITS IMPACT ON INDIA

Prepared byAditi Pradhan

Bharat Rao
Komal Bhatt
Rakshit Pujari
Rigma Jayaswal
Sneham Mulerickal

TABLE OF CONTENTS

Sr. No.
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2
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4
5
6
7
8
9
10

Topic
About Sovereign debt
The European economy
The Eurozone
Evolution of the Euro and the Crisis
Origin of the Euro Crisis
Present scenario
Reasons behind the crisis
Corrective measures adopted
Impact of the Crisis on India
Bibliography

Page No.

SOVEREIGN DEBT
Sovereign debt is a debt instrument issued by a national government. It is theoretically
considered to be risk-free, as the government can employ different measures to guarantee
repayment, e.g. increase taxes or print money. However, the repayment of sovereign debt
cannot be forced by the creditors and it is thus subject to compulsory rescheduling, interest
rate reduction, or even repudiation. The only protection available to the creditors is threat of
the loss of credibility and lowering of the international standing (the sovereign debt rating) of
a country, which may make it much more difficult to borrow in the future.
In practice, there have been multiple cases in which governments could not serve their debt
obligations and had to default. As a consequence, investors ask for different yields across
countries. The more a country's repayment ability is in question and the riskier sovereign debt
becomes, the higher is its yield.
Sovereign debt differs within and across countries. Sovereign debt is generally a riskier
investment when it comes from a developing country and a safer investment when it comes
from a developed country. The stability of the issuing government is an important factor to
consider, when assessing the risk of investing in sovereign debt, and sovereign credit ratings
help investors weigh this risk.
Examples of countries debt management objectives are:
Australia ....to minimize the long term market value of the public debt (cost) and contain
the volatility of budgetary debt cost (risk)....
Canada ....to provide stable low cost funding for the Government and to maintain a well
functioning market for Government of Canada securities.
Denmark ....to achieve the lowest possible long-term borrowing costs, to keep the risk at an
acceptable level, to build up and support a well-functioning, effective financial market....
Ireland ....to contain the level and volatility of annual fiscal debt service costs, contain the
governments exposure to risk....

Italy ....to minimise the financing cost for a certain level of financial risk, in particular that
of refinancing and interest.
New Zealand ....to maximise the long-term economic return on the Governments financial
assets and debt in the context of the Governments fiscal strategy, particularly its aversion to
risk....
Sweden ....to minimise the cost of borrowing within agreed risk tolerances....
United Kingdom ....to carry out the Governments debt management policy of minimizing
finance costs over the longer term, taking into account risk, and to manage the aggregate cash
needs of the Exchequer in he most cost efficient way.
The following table sets out the assets and liabilities that make up the governments balance
sheet:
Assets
PV of Income flows

Liabilities
PV of Expenditure obligations

Foreign exchange reserves

Public debt

Marketable securities

PV of contingent obligations

Lending to state entities

Equity (net worth)

Investment in state entities

Investment in

Infrastructure

Property

Other assets

ABOUT THE EUROPEAN ECONOMY

.

The economy of the European Union generates a GDP of over 12,279.033 billion (2010)
according to the International Monetary Fund (IMF), making it the largest economy in the
world. The European Union (EU) economy consists of a single market and the EU is
represented as a unified entity in the World Trade Organization (WTO).
The services sector is by far the most important sector in the European Union, making up
69.4% of GDP, compared to the manufacturing industry with 28.4% of GDP and agriculture
with only 2.3% of GDP.
The EU presently consists of 27 countries. These countries are Austria, Belgium, Cyprus,
Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland,
Italy, Latvia, Lithuania, Luxembourg, Malta, The Netherlands, Poland, Portugal, Slovak
Republic, Slovenia, Spain, Sweden, UK, Bulgaria and Romania.

ABOUT THE EUROZONE

The eurozone, officially called the euro area, is an economic and monetary union (EMU) of
seventeen European Union (EU) member states that have adopted the Euro () as their
common currency and sole legal tender. The eurozone currently consists of Austria, Belgium,
Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Malta, the
Netherlands, Portugal, Slovakia, Slovenia, and Spain. Most other EU states are obliged to
join once they meet the criteria to do so. No state has left and there are no provisions to do so
or to be expelled.
Monetary policy of the zone is the responsibility of the European Central Bank (ECB) which
is governed by a president and a board of the heads of national central banks. The principal
task of the ECB is to keep inflation under control. Though there is no common
representation, governance or fiscal policy for the currency union, some co-operation does
take place through the Euro Group, which makes political decisions regarding the eurozone
and the euro. The Euro Group is composed of the finance ministers of eurozone states,
however in emergencies, national leaders also form the Euro Group.
Since the late-2000s financial crisis, the eurozone has established and used provisions for
granting emergency loans to member states in return for the enactment of economic reforms.
The eurozone has also enacted some limited fiscal integration, for example in peer review of
each other's national budgets. The issue is highly political and in a state of flux as of 2011 in
terms of what further provisions will be agreed for eurozone reform.
On occasions, the eurozone is taken to include non-EU members who use the euro as their
official currency. Some of these countries, like San Marino, have concluded formal
agreements with the EU to use the currency and mint their own coins. Others, like
Montenegro, have adopted the euro unilaterally. However, these countries do not formally
form part of the eurozone and do not have representation in the ECB or the Euro Group.
Of late, the Eurozone has been struck with a severe financial crisis like situation wherein
bailouts of its individual economies has increased dramatically. The worst affected is Greece,
followed by Ireland, Portugal, Italy, and Spain, collectively referred to as the PIGS
economies.
The table shows a comparison between the strongest economy of the EU with the crippled
economy Greece vis--vis the Indian Economy.

GERMANY

GREECE

INDIA

Retirement Age

58

50

58

Population Growth

-ve

-ve

+ve

75 yrs

75 yrs

60 yrs

Life Expectancy
Immigration

Poor due to language Poor due to language

and limited resources and limited resources

High Population has

effectively supported
brain drain

Pension Funds

Highly active and

Heavily burdened with Strict Government laws
critical for those who early retirement age and do not provide for them
have paid taxes earlier poor population growth to invest in Equity
for post retirement
Markets. They generate
earnings
income through
government finance

Debt Impact

Burdened with a poor

ratio of Earning
Population vis-a-vis
Retired Pension
Earners will now have
to deal with Greeces
retirement imparity.

A much earlier age of Internal consumption is

retirement, risk of brain very high and has a
drain due to lack of
steady growth in GDP
employment, higher
with government
rates of interest will
progressively reducing
make it difficult for
debt via divestment
them to generate
plans.
income.

EVOLUTION OF THE EURO AND THE CRISIS

The Euro () was established in Maastricht by the European Union (EU) in 1992. In order to
join the currency, member states had to qualify by meeting the terms of the treaty in terms of
budget deficits, inflation, interest rates and other monetary requirements. Of the EU members
at that time, the United Kingdom (UK), Sweden and Denmark declined to join the currency.
At present, 17 EU countries have adopted Euro as their currency and a brief historical
account of the same is given below :
1999 - On 1 January, the currency officially comes into existence
2001 - Greece joins the euro
2002 - On 1 January, notes and coins are introduced
2007 Slovenia joins the EU
2008 - Malta and Cyprus join the euro
2009
-

Slovakia joins the euro

Estonia, Denmark, Latvia and Lithuania join the Exchange Rate Mechanism to bring their
currencies and monetary policy into line with the euro in preparation for joining.

2011 - On 1 January, Estonia joins the euro, taking the number of countries with the single
currency to 17

However, the common currency has brought about many twists and turns for the countries
that have adopted it, which is given below:

2008 - In December, EU leaders agree on a 200bn-euro stimulus plan to help boost European
growth following the global financial crisis.

2009 In April, the EU orders France, Spain, the Irish Republic and Greece to reduce their
budget deficits - the difference between their spending and tax receipts.
In October, amid much anger towards the previous government over corruption and
spending, George Papandreou's Socialists win an emphatic snap general election victory
in Greece.
In November, concerns about some EU member states' debts start to grow following the

Dubai sovereign debt crisis.

In December, Greece admits that its debts have reached 300bn - the highest in modern

history. Greece is burdened with debt amounting to 113% of GDP - nearly double the
eurozone limit of 60%. As a result of it, ratings agencies start to downgrade Greek bank
and government debt. Mr. Papandreou insists that his country is "not about to default on
its debts".

2010
In January, an EU report condemns "severe irregularities" in Greek accounting
procedures. Greece's budget deficit in 2009 is revised upwards to 12.7%, from 3.7%, and
more than four times the maximum allowed by EU rules. The European Central Bank
dismisses speculation that Greece will have to leave the EU.
In February, Greece unveils a series of austerity measures aimed at curbing the deficit.
Concern starts to build about all the heavily indebted countries in Europe - Portugal,
Ireland, Greece and Spain. On 11 February, the EU promises to act over Greek debts and
tells Greece to make further spending cuts. The austerity plans spark strikes and riots in
the streets.
In March, Mr.Papandreou continues to insist that no bailout is needed. The euro continues
to fall against the dollar and the pound. The eurozone and IMF agree a safety net of
22bn to help Greece - but no loans.

 In April, following worsening financial markets and more protests, eurozone countries
agree to provide up to 30bn in emergency loans. Greek borrowing costs reach yet further
record highs. The EU announces that the Greek deficit is even worse than thought after
reviewing its accounts - 13.6% of GDP, not 12.7%.
On 2 May, the eurozone members and the IMF agree a 110bn bailout package to rescue
Greece. The euro continues to fall and other EU member state debt starts to come under
scrutiny, starting with the Republic of Ireland.
In November, the EU and IMF agree to a bailout package to the Irish Republic totaling
85bn. The Irish Republic soon passes the toughest budget in the country's history. Amid
growing speculation, the EU denies that Portugal will be next for a bailout.

2011
In February, eurozone finance ministers set up a permanent bailout fund, called the

European Stability Mechanism, worth about 500bn .

In April, Portugal admits it cannot deal with its finances itself and asks the EU for help.
In May, the eurozone and the IMF approve a 78bn bailout for Portugal.

In June, eurozone ministers say Greece must impose new austerity measures before it gets

the next tranche of its loan, without which the country will probably default on its
enormous debts. Talk abounds that Greece will be forced to become the first country to
leave the eurozone.
In July, the Greek parliament votes in favour of a fresh round of drastic austerity

measures, the EU approves the latest tranche of the Greek loan, worth 12bn. A second
bailout for Greece is agreed. The eurozone agrees a comprehensive 109bn
package designed to resolve the Greek crisis and prevent contagion among other
European economies.
In August, European Commission President Jose Manuel Barroso warns that the

sovereign debt crisis is spreading beyond the periphery of the eurozone. The yields on
government bonds from Spain and Italy rise sharply - and Germany's falls to record lows
- as investors demand huge returns to borrow.

On 7 August, the European Central Bank says it will buy Italian and Spanish
government bonds to try to bring down their borrowing costs, as concern grows that
the debt crisis may spread to the larger economies of Italy and Spain. The G7 group of
countries also says it is "determined to react in a co-ordinated manner," in an attempt
to reassure investors in the wake of massive falls on global stock markets.

During September,
1. Spain passes a constitutional amendment to add in a "golden rule," keeping future
budget deficits to a strict limit.
2. Italy passes a 50bn austerity budget to balance the budget by 2013 after weeks of
haggling in parliament. There is fierce public opposition to the measures - and several
key measures were watered down.
3. The European Commission predicts that economic growth in the eurozone will come
"to a virtual standstill" in the second half of 2011, growing just 0.2% and putting more
pressure on countries' budgets.
4. On 19 September, Greece holds "productive and substantive" talks with its
international supporters, the European Central Bank, European Commission and IMF.
5. The following day, Italy has its debt rating cut by Standard & Poor's, to A from A+.
Italy says the move was influenced by "political considerations".

ORIGIN OF THE EURO CRISIS

In the late 1990s and early 2000, stock markets in the USA crashed owing to the bursting of
the dotcom bubble that was built up due to the hype surrounding the internet companies. In
order to prevent a recession, the Federal Reserve, the Central Bank of USA, lowered the
interest rates on loans from 6.4% in December 2000 to 1% in December 2003. As a result of
this, commercial and consumer lending picked up and the US economy could avoid an
economic downturn.
However, as the banks were flooded with excessive funds with limited borrowers, they
started lending money to a new group of borrowers termed as sub-prime borrowers, who
were less creditworthy as compared to prime borrowers. So, they were offered loans at a
higher repayment rate. Reckless lending was adopted by many banks with loans given out to
No Income, NO Jobs (NINJA) category of borrowers and as loans were available at cheap
rates with favourable payment terms, it was an ideal time for this category to capitalize on the
situation. The favourable payment terms included zero payment of Equated Monthly
Installments (EMIs) for the first 2 years of borrowings.
The Fed realized this recklessness and in order to regulate the same, started increasing the
rates from the year 2004, which were increased to 5.25% in July 2007. As a result of this, the
borrowers had to bear the brunt of increased EMIs. Higher interest rates also led to a decrease
in demand for mortgage loans, which led to a decrease in the price of the property. Due to
this, the borrowers were not in a position to sell off their property to payback the loans and
they were left with no option but to default on the payment and then foreclose the loan. This
led to a further reduction in the price of the property and the number of properties put up on
sale increased dramatically. However, these properties could not find any buyers and the
banks had to report the defaults as bad debts in their account.
The crisis, however, was not limited to the mortgage banks alone. The state of the Nonmortgage banks like investment banks, insurance, etc was worse. The mortgage banks, in
order to increase its revenues, started issuing securities whose cash flows were supported by
the underlying portfolio of mortgages. These were known as mortgage-backed securities. The
repayment of these securities was linked to the inflows that the mortgage bank would receive
from the repayment of mortgage loans, which would then be passed on to these non-mortgage
banks. These securities, derived out of complex financial engineering process, were issued
after they were rated by reputed Credit rating agencies, who failed to look into the risks
involved in the same. The non-mortgage banks in turn sold these securities to the retail
investors, who showed great enthusiasm in the same due to the ratings accredited to them.

Hence, the overall risk of the securities was passed onto these investors, with the banks acting
like the intermediary.
So, when the mortgage loan borrowers defaulted and their loans were foreclosed, this meant
that there was no inflow to repay these securities and this led to enormous losses to the
investors. At its peak, the mortgage backed securities formed close to a quarter of the total US
bond market, which was more than the total bonds issued by the US Treasury department. So,
when the borrowers defaulted, this led to the crash of the entire US bond market. Many
intermediary banks went bankrupt as they suffered losses beyond their repayment capacity
which led to the closure and bailouts of many financial institutions. This led to a nation wide
recession, which was then passed onto other economies which were closely aligned with the
US economy which included the economies of the European Union, as they had good
exposure to US debt. During the same period, cover-up in the disclosure of deficit by Greece
was revealed, which led to a loss of investors confidence in the debt of the country. This,
compounded by various other factors, as detailed earlier, has led to a debt crisis-like situation
in the Eurozone and its economies.

CREDIT DEFAULT SWAPS

Credit default swaps (CDS) are the most widely used type of credit derivative and a powerful
force in the world markets.
A CDS contract involves the transfer of the credit risk of municipal bonds, emerging market
bonds, mortgage-backed securities, or corporate debt between two parties. It is similar to
insurance because it provides the buyer of the contract, who often owns the underlying credit,
with protection against default, a credit rating downgrade, or another negative "credit event."
The seller of the contract assumes the credit risk that the buyer does not wish to shoulder in
exchange for a periodic protection fee similar to an insurance premium, and is obligated to
pay only if a negative credit event occurs. When such an event occurs, the seller of the credit
protection may deliver either the current cash value of the referenced bonds or the actual
bonds to the protection buyer, depending on the terms agreed upon at the onset of the
contract. If there is no credit event, the seller of protection receives the periodic fee from the
buyer, and profits if the reference entity's debt remains good through the life of the contract
and no payoff takes place. However, the contract seller is taking the risk of big losses if a
credit event occurs. It is important to note that the CDS contract is not actually tied to a bond,
but instead references it. For this reason, the bond involved in the transaction is called the
"reference obligation." A contract can reference a single credit, or multiple credits.

PRESENT SCENARIO

CAUSES OF CRISIS

MEASURES ADOPTED

IMPACT OF EUROZONE CRISIS ON INDIA

I) TRADE
The impact on India's trade has been moderate so far. In fact, India's total exports for fiscal
year 2011 grew at a blistering 38%, with the current account deficit as a proportion of GDP
halving in 2010-11 as compared to a year earlier. The robust growth is a reflection of greater
exports of higher-value added goods as compared to labour intensive-goods earlier, as well as
a more diverse range of countries as export destinations for Indian goods.
The EU as a destination for Indian exports has weakened over time, with the share of Indian
exports going to that region falling to 20% in 2009-10, from around 22.7% in 2003-04
II) Foreign Direct Investment (FDI)
Foreign investors have fled India in recent months mainly because of India's own problems
like slowing domestic industrial growth, rising interest rates and fuel costs. Other reasons
being the weakness of the UPA government and its non-existent reform push, not because of
Eurozone crisis.
III) Information Technology (IT) Industry
Fears that the slowdown gripping the Euro zone and US will have an adverse impact on
Indian IT companies are dispelling away. Recessionary trends in West are not going to have
any serious impact on the Indian IT sector as the industry is expected to grow further on
increasing domestic demand and tapping new markets outside the Western world.
NASSCOM is quite confident and sure about the potential of IT sector in India. IT seems to
be providing for both the good times and bad times. According to him, the domestic market in
India had been growing faster in the last two years. Also, the impact of the crisis may not be
substantial as most the clients of the Indian IT companies are private companies, which in
times of a slowdown, opt for operational efficiencies and aim to cut down on costs by
increasing their reliance on software technology.
Also, there are emerging markets like Russia and Brazil which Indian software and service
providers can tap. Even in Europe and USA, the private sector continues to be strong, he said.
Even though the last decade had been generally considered a troubled time the world over,
still the Indian IT market had kept its phenomenal growth during that period, which is an

optimistic point. IT companies are undergoing phenomenal transformations in order to enter

emerging markets.
IV) STOCK MARKETS
It seems as tough times are ahead for Indian markets as overseas investors pull out.
With India and China, the two growth engines that pulled the world out of a recession in
2009, faltering due to high prices and cost of funds, investors are chasing the lone safe asset
now, US treasuries, leading to turbulence in currency markets.
Investors' faith in governments is eroding fast as they talk in different voices unlike three
years ago when they were in chorus to avert a repeat of Great Depression. The variance
between the G20 statement at the weekend and individual voices exposes the lack of options
and disagreement over how to tackle the emerging market sovereign crisis. This is in sharp
contrast to 2008, when policymakers spoke and acted in unison to tackle the crisis.
Policymakers are "committed to a strong and co-ordinated international response to address
the renewed challenges facing the global economy," the G20 finance ministers and central
bank chiefs said in a statement. But at an individual level they were singing different tunes.
RBI says,We are rapidly running out of time, and may, therefore, be running out of
solutions." Geithner said the failure to combat the Greek-led economic turmoil threatened
"cascading default, bank runs and catastrophic risk".
Investors are in a dilemma over what to make out from these statements and there is a belief
that policymakers have run out of ammunition to tackle the problems. Investors are advised
to stay out of the market
Investor confidence in the world's largest economy, the US, is plunging. China, the fastestgrowing major nation in the world, is also headed for a slowdown after monetary tightening
to curb prices. The growth forecast for India is being sliced.
TEXTILE INDUSTRY
From the point of view of the textile industry, trade between nations is the critical factor that
keeps the doors to knitting factories and spinning mills open. This is particularly true for
India, whose textile industry is heavily dependent on its export to developed nations such as
the Euro zone countries and the United States of America.

The market for Indian textiles in foreign nations in actual sense is its people, i.e., consumers.
Therefore, the economic well being of these consumers in the developed economies is very
critical to the well being of the export dependent Indian textile industry. More strikingly, with
the price of an important raw material for the Indian textile industry, going over the roof, i.e.,
price of cotton, the profitability of the entire value chain of the Indian textile industry is a
question mark now! Given the slow economic growth in developed economies, volatility in
Cotton price, high inflation in developing economies such as China and India, the Indian
textile industry should take proactive measures to keep it competitive and creep towards
growth.
The collapse of the housing bubble led to the mortgage crisis which has brought the Irish
financial sector to its knees. Euro zone nations Lead by Germany and France, in order to save
the Euro, have to keep some nations in Euro zone such as Portugal, Ireland, Greece and Spain
(PIGS) solvent. Euro zone nations are the biggest buyers of Indian apparels and textile
products, hence the value of Euro is significant for India.
If the Euro weakens, contracts traded in Euro currency will result in lesser returns in Indian
Rupees. And, more importantly, if the debts in poorer Euro zone nations increase and their
economy collapse, due to severe austerity measures, which will be taken by these
governments, the buying power of consumers will come down. These nations have to lay off
several thousand employees and will suspend a number of public sector projects. All these
will put dent in consumer spending, which will impact imports from exporting countries such
as India, China, Bangladesh and Vietnam.
CAPITAL MARKETS
Sovereign debt problems in advanced economies like the Eurozone and the US, are making
financial markets nervous. The tepid global economic recovery seen so far is stalling. Growth
in most advanced economies had declined in the second quarter of 2011. Emerging markets
like India, witnessed a combination of moderation in growth and rising inflation.
India's GDP growth declined to 7.7 percent in April-June 2011 period, slowest in six quarters.
India's industrial output slumped to 3.3 percent in July, the slowest growth in two years.
Growth has declined across the world leading to slump in the global stock markets.
Aggressive monetary tightening by the central bank was also hurting growth. Emerging
markets recovered quickly from global slowdown, but are facing elevated commodity prices,

inflation, moderating growth and volatile capital flows all at once," he said. Central banks
have been forced to raise policy rates repeatedly, potentially compromising growth in the
short-term. The Reserve Bank of India (RBI) has hiked its policy rates 11 times since March
2010 to curb inflation.
However, despite an aggressive monetary tightening inflation has remained stubbornly high,
near double-digit, much above the central bank's comfort level of 4-5 percent.
The central bank was confronted with problem of curbing inflation, keeping growth high and
managing capital inflow. While raising rates may help stabilise growth, it may also invite
more capital inflows.
Managing capital flows is crucially important for emerging economies like India.
Large and volatile capital flows to emerging markets can be destabilising as they lead to high
exchange rate volatility and, in some cases, make it incumbent to maintain high levels of
foreign exchange reserves as an insurance against sudden or large-scale flight of international
capital.
PHARMACEUTICAL
More than 1/3rd of the revenues of the pharmaceutical giants of our country comes from
predominantly the US and then the UK.
At the time of the crisis, governments tend to cut their healthcare spending in order to bridge
the deficit. However, as drugs belong to the essential items of consumption, people tend to
switch to cheaper generic drugs available. As Indian drugs are about 70-80% cost effective as
compared to their branded counterparts, the pharmaceutical companies may witness a surge
in demand for their drugs.

Impact on India
Because of the global uncertainty all these calculations can easily go wrong. Infact, sentiment
has already reversed in some cases:

The investments might not increase seeing the global uncertainty.

Investment was a key driver in Indian 9% growth period (2003-08). Again it is expected to
play the key. We have seen business confidence evaporating in thin air quick time

IIP could again decline as it did post September 2008 crisis

Credit growth could decline both because of banks becoming uncertain

and business not demanding credit

Foreign capital inflows could reverse to an outflow position. Infact this

has already started to happen with FII showing outflows worth USD 1.65 billion in May
(from May 1 2010 to May 24 2010) from equity markets. Till April 2010, we had nearly
USD 6.65 billion of capital inflows.

The decline in inflows along with global uncertainty has led to decline in

equity markets. The expectations of BSE Sensex reaching soon to 21,000 levels are being
revised downwards.

The volatility is again increasing. If we see the NSE VIX index. It had

increased from 20 level in Jan 2008 to 85 levels in Nov-08. It then declines to go back to
pre-crisis level of 17-18. It has again started increasing to touch 34 levels now.

Yields in bond markets have eased considerably to 7.35% levels looking

at the global crisis. This is quite a turnaround as most market participants expected yields to
touch 8-8.25% levels after April Monetary Policy. The market participants were also

expecting RBI to increase interest rates even before its monetary policy in July 2010. This
crisis has reversed the sentiment and most now expect RBI to keep interest rates unchanged
in July policy.

Export markets could also decline for reasons explained above.

If the crisis situation worsens, Indian government might again have to

intervene to ease the crisis situation. Though the probability is remote, but it is till there.
There are expectations that fiscal deficit and government borrowing program could be
lower than budgeted amount. This is because of the higher than expected proceeds from 3-G
auctions. If crisis worsens, the government borrowing and fiscal deficit could get worse.

Oil and commodity prices have declined as well. This could be a positive

factor as inflation might just become lower.