Government borrowing under control

But a late surge in monsoons has led to that fear abating significantly. Moreover, with domestic stock markets on a strong upward path, the government's divestment plans have received a big boost and this is further easing pressure on its borrowing program and consequently, the fiscal deficit. Nonetheless, we are still likely to end the fiscal with a deficit of 6.8% of GDP, one of the highest in recent years.

US dollar on the path of volatility

Continuing with the theme of record fiscal deficits, situation in the US is even worse than India. In fact, a weakening US dollar on account of the reckless money printing by the US Government and the record low interest rates is making the dollar an ideal currency to borrow and invest in other higher-yielding assets. In other words, the dollar is challenging the Yen's status of becoming the carry-trade currency of choice.

However, there is one fundamental difference here. Unlike the Yen, which is a much stronger currency on account of Japan running a trade surplus, the US dollar is fundamentally very weak and hence, could continue to fall sharply. This could lead to more people playing the dollar carry-trade and ultimately a point will be reached, where dollars would be absorbed faster than they are being created, thus leading to temporary reversal in the exchange rate. It looks like volatility is going to be the order of the day for the global reserve currency of choice.