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BUSINESS
Surging fuel price likely to hit Indian economy
By
Devajit Mahanta
Since January 2008, barely less than six months, crude oil has
registered a record 47 per cent jump, making the oil exporting countries
richer and oil importing countries like India penniless. Hapless India,
where more than 50 per cent population subsisting on two dollar per day,
has paid $68.00 billion for oil import in 2007-08. It may be tough to
calculate what extra burden India is going to bear in 2008-09 since one
quarter has passed with crude price scaled a new peak of $142.99 a barrel
last week may look still worse as rupee has depreciated by seven per cent
during the period. Chakib Khelil, president of the Organization of
Petroleum Exporting Countries (OPEC), says oil will probably hit a high of
$170 a barrel. His speculative statement comes at a time when oil inflation
is pinching people around the world. At least, in near future, until the
economy of America
is back on track, it seems a distant reality when oil will trade below
$100. Probably, we have to wait till the fear of recession in America and
consequently the world over evaporates completely and inflation genie is
bottled back in major economies of the world. And as such, cost of
importing costly crude will keep inflation in India in double digit, at least
for few more months.
With inflation touching a 14-year high of 11.42 percent, the big question
being asked now is: Did the United Progressive Alliance (UPA) government do
too little too late? The finance minister, however, is certainly not off
the mark when he says inflation has not just hit India but the rest of the world
as well. In fact, global oil prices have pushed inflation levels to 8.5
percent in China, 19.3
percent in Pakistan and
10.4 percent in Indonesia.
Even oil exporting country like Venezuela
is facing a daunting 29.3 percent annual price rise in April, while major
oil producer Russia
has had to tackle 15 percent inflation. It all started with the US sub
prime problem and the global credit crunch, which has led to Sensex
nose-diving from its peak of 21,206 on January 10, 2008 to 13802 on June
21. A part of the fall can also be attributed to the concerns pertaining to
the increase in crude oil prices and its impact on India’s
economic growth. If the global and domestic problems persist, experts
predict the Sensex will fall to 12,000-14,500 levels. Sensing these
developments, foreign institutional investors were the first ones to move
out of the market, and they partly became the reason for the markets to
fall. India
has slipped 13 places to 64th rank in the global list that measured
business climate in 121 countries, as inflation and differences between the
government and its Left allies dampened investor confidence. Inflation is
rising in India due to increase in the costs of food imports, the current
account deficits, though comfortable at current levels (India’s deficit of
1%) will also be rising if the crude oil prices were sustaining at current
levels. Crude oil is one such commodity, whether it is the economy (macro)
or corporate profitability (micro), which is considered to be the source of
most of the problems.
Readers can send their feedback at devajitmahanta@gmail.com
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