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Twenty six of the 27 European nations decided to move forward with "tighter integration" and a closer "fiscal union" which seems to have cheered markets tremendously. (The lone dissenter was the UK.) These grandiose statements provide way too little detail in exactly how such a pact would work, and be palatable to the vast electorate at the same time.

The idea is that a tighter control of both spending and taxes by a central body will ensure that no country will go overboard and thus harm the Euro. The central body would almost surely be loaded towards Germany and France, and why would a Greece, a Holland or a Portugal allow such a body to not just determine how much tax they would pay, but also how much they can spend and on what? It is highly unlikely that just because German and French banks own the debt of certain countries, that Germany and France will be allowed to violate their sovereignty; although it is a big statement, I doubt everyone will see eye-to-eye when Germany

The government has not been able to divest public sector company shares in the market, due to depressed investor sentiment as markets have fallen over 20% in the year. The lack of this "extra" revenue means that total government receipts — or "income" — have fallen 18% compared to last year (as of October 2011). With expenditure growing at 10%, the fiscal deficit is at Rs. 3  lakh crore, which is already about 4% of GDP. It is only expected to grow.

Last year, a significant amount of revenue came from non-tax income. A Rs 100,000 cr windfall was made from the spectrum auctions to telecom companies, and another Rs 22,000 cr came from divestments in government owned enterprises like Coal India, SAIL, and MOIL. The divestment target for FY 2011-12 was Rs 40,000 cr, of which the government has only managed a little more than Rs 1,100 cr through a follow on offer of PFC.

Recently the government has been asking public sector companies to buy back their shares to help plug the fiscal deficit.

While derivatives have been called weapons of mass destruction and worse, they can provide alternative methods to participate in the markets. To a bystander, these instruments seem complex — and some indeed are so, with SEBI now requiring brokers to ensure that investors are financially capable of handling themselves before they can trade derivatives.

An alternative way to buying stock is to use a "future". Instead of having to buy equity into a company and paying up the full amount of money, we use a derivative and buy the future instead, paying only a margin amount upfront, and putting the rest of the money as cash, which can earn interest in a liquid mutual fund. I tracked the stock of ICICI Bank, bought directly versus buying with a future, since 2006:

ICICI

I've assumed a single lot of 250 shares, bought for about Rs. 150,000 in 2006, that returns, with dividends. (further assumptions — 30% margins, and the return on cash is 5%)

The futures approach is 10% higher in terms