The question here is whether the rate cuts implemented on March 1, 1999 will be sufficient, said the report.

While "undue volatility will certainly be checked rupee sliding to 43.50/44 in a month might not be construed as undue volatility. Hence, RBI might let the currency slide over the next month or so and it would be more comfortable with a marginally undervalued rupee than a five per cent overvalued one as computed in the Economic Survey," said the report.

If the RBI does allow the rupee to decline by three per cent over the next to four per cent over the next month, this will take some pressure off the currency in the new year. If, however, the RBI continues to hold the rupee at current levels, the drop would be faster and much larger in magnitude whenit comes, the report adds.

The fiscal deficit for 1999-00 is budgeted at 4 per cent of GDP, excluding small savings. "One fails to comprehend the reason for excluding small savings from the deficit which are liabilities of the central government and have to be repaid," questions the report.

Clearly, the fiscal deficits numbers computed on a traditional basis have reached alarming levels. The revised fiscal deficit for 1998-99 is estimated at 6.5 per cent of GDP compared to the target of 5.6 per cent. Computed on a similar basis the fiscal deficit targeted for 1990-00 is 5.9 per cent of GDP.

The new GDP series and the differential treatment of collections under small savings have masked the true fiscal picture.

According to the report, the fiscal and revenue deficit numbers computed on the old GDP series and taking into account the impact of small savings, clearly show that government finances are not much better than they were in the crisis year 1990-91. Further, given the magnitude by which boththese deficits have been exceeding in the current year, the targets for next year look optimistic.

Another concern is the 14 per cent increase in interest payments next year to Rs 88,000 crore. Even worse, the total debt servicing (interest-payment) exceeds total revenue receipts by 6.7 per cent, a clear indication of an impending internal debt crisis, said the report.