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The Indian economy is staring down the barrel of a twin-deficit problem, if not a triple-deficit one. The Department of Economic Affairs' latest monthly report on the economy has highlighted the possibility of a significant worsening of the fiscal deficit and the current account deficit.
According to the report, government revenues will decline following cuts in excise duties on diesel and petrol. So the gross fiscal deficit will go up. “Increase in the fiscal deficit may cause the current account deficit to widen, compounding the effect of costlier imports, and weaken the value of the rupee, thereby further aggravating external imbalances, creating the risk (admittedly low, at this time) of a cycle of wider deficits and a weaker currency.”