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Stock, shock and barrel

Domestic inflation has hit a scary high. And an impending fuel hike will make things worse.
Hindustan Times | By HT Correspondent
UPDATED ON JUL 04, 2008 09:37 PM IST

Spooked by rising oil prices, stock markets are tumbling all over the world. The Sensex, India’s bellwether stock market index, too, tanked below the 13,000 level earlier in the week, largely influenced by global cues. Domestic inflation has hit highs of 11.63 per cent on the back of dearer food items like fruits, vegetables, imported edible oils, tea, sea fish, cement, iron and steel. Contributing to the depressed overall sentiment is the fact that foreign institutional investors have withdrawn $6.44 billion out of Indian stocks this year. Making matters worse is also the political uncertainty and whether the ruling UPA government can go ahead with the nuclear deal and complete its 5-year term.

The relentless rise in oil prices to $147 a barrel is clearly stoking pressures on the domestic inflationary front. Although the pass through of global prices to domestic prices is limited, the official version is that it is fuelling double-digit inflation. The top brass of the petroleum ministry attending the World Petroleum Congress in Madrid has indicated that the government will review the government-controlled retail prices of petrol and diesel in October. Earlier this week, there was a threat of fresh pressures on prices when 4.8 million truckers protested the duty structure on diesel and hike in toll taxes. Although the strike has been called off, there will be some impact as edible oil prices might shoot up.

Costlier oil passes through to fuel prices, pushing up costs of all forms of transportation. Nowhere is this impact more felt than in the soaring costs of air travel in the country — steadily making it prohibitive for the middle class. This is already reflected in the decline to single-digit growth rates for domestic air passengers. A move in favour of cheaper rail travel may be expected. Higher diesel prices – likely in October – make matters difficult for the common man as they feed into higher prices of food, vegetables and fruits transported by road and rail. Sadly, no relief is likely unless global oil prices are checked.

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