Going forward, strong exports, weak non-oil imports, and relatively soft prices will keep the balance of payment (BoP) in good shape and the currency stable. JP Morgan expects no more than 4 per cent depreciation of the rupee in calendar 2001, says JP Morgan in its latest Indian Markets Outlook and Strategy report.

JP Morgan projects the rupee at Rs 48.25 towards end December and Rs 48.75 by the end of 2001-2002.

Also, withdrawal of base-effects should see whole price inflation ease from 8.2 per cent now to about 6 per cent over the next couple of months, predicts the report. The finance minister is expected to show a market borrowing number for next year which is actually lower than the current year. Larger repayment obligations in 2001-02, will however push the government's gross market borrowing needs to a projected Rs 117,504 crore, marginally higher than in the current financial year. Last week's monetary easing has come a little sooner than expected. Clearly, the global softening in interest rates, pressure from ailing industry and a stable currency prompted the RBI to ease bank rates even before seeing the Budget and the government's funding needs for 2001-02. Nevertheless, Budget surprises are likely to be on the positive side and funding needs for next year will not be too different from this year's, the report said.

Portfolio strategy across the Budget should be geared towards cutting high risk positions and moving to lower duration bonds, it suggests. Foreign reserves are likely to cross $48 billion in the next financial year.

India's foreign reserves, after rising over $10 billion in 1999-2000 and 2000/01, look set for another big jump in the coming financial year. The weak industrial activity and relatively soft oil prices will keep overall import growth sluggish, which along with strong growth in exports and invisibles will keep the current account in check. The capital account is expected to benefit from higher foreign capital inflows (government's divestment efforts will bear fruit next year). As a result, overall BoP is likely to post a surplus of over $6 billion in 2001-02. This in turn will keep the rupee fairly stable. For the first time in several years, the government's deficit target for 2000/01 is likely to be met. As a result, its market borrowings will also be more or less as planned. This rare achievement comes from a combination of stronger tax revenues (particularly direct taxes) and prudent expenditure management.

Cost savings are estimated to have risen mainly from lower defence related expenditure this year. The shortfall in privatisation proceeds will be offset by better than expected revenue receipts and lower than estimated non-plan expenses.