Indian stocks up, but higher fuel prices stoking inflation
Last week, the government raised fuel prices following rising oil prices. However, this has led to speculation that could further push inflation, already running faster than economic growth, which in turn could cause a recession.
New Delhi (AsiaNews/Agencies) – India’s benchmark stock index rose for the third day as a drop in oil outweighed concern that an increase in local fuel prices and foreign investments might stoke inflation. The Bombay Stock Exchange Sensitive Index rose about 1 per cent, extending the biggest rally in four months, especially shares in oil and energy companies.
On 24 June, the government allowed state refineries to increase diesel prices by 3 rupees (US$ 7 cents) a litre, kerosene by 2 rupees a litre and cooking gas by 50 rupees for every 14.2 kilogram bottle.
Asia’s third-biggest economy caps fuel prices to favour domestic consumption and development and shield 66 per cent of the population that lives on less than US$ 2 a day from price pressures.
However, this has meant refiners lost 450 billion rupees (US$ 10 billion) in the first quarter from selling fuel below cost.
Experts believe that inflation could rise by an additional 1 per cent, which will be passed and push the prices of other items. At present, India’s inflation is running at 9.06 percent.
Growth is expected to slow down to between 7.5 to 8 per cent during the fiscal year ending April 2012, down from 8.5 per cent between 2010-11.
The upshot is that if India does not stop inflation, price hikes will be higher than economic growth.
Overall inflation is being led by high food prices, especially staple food, which weighs more heavily on the lower and middle classes.
Prime Minister Manmohan Singh recently warned that the country's rapid economic growth is under "serious threat" from inflation. To tame inflation, the authorities have tightened monetary policy, raising interest rates 10 times since March 2010.
With money becoming dearer to borrow, investments have slowed down. Foreign direct investments fell by a quarter; they are US billion this fiscal year, down from US$ 25 billion in 2009-10.
Production costs are up since India imports 84 per cent of its oil and has no readily available alternatives. Its infrastructures are also in need of major overhaul and in large areas of the country power supplies are erratic, roads are in poor condition and water supply is uncertain.
With most Indians still into farming, they are vulnerable since 60 per cent of the country's farms are rain-fed without any irrigation facilities.
For India to grow, it must invest in every sector, but in order to do so it needs capital, much of which is now paying for direct subsidies and oil imports.
Finance Minister Mukherjee, in his 28 February budget, estimated a spending of 236.4 billion rupees on fuel subsidies in the year to March 31, less than the 383.8 billion rupees spent in the previous 12 months.
On 24 June, the government allowed state refineries to increase diesel prices by 3 rupees (US$ 7 cents) a litre, kerosene by 2 rupees a litre and cooking gas by 50 rupees for every 14.2 kilogram bottle.
Asia’s third-biggest economy caps fuel prices to favour domestic consumption and development and shield 66 per cent of the population that lives on less than US$ 2 a day from price pressures.
However, this has meant refiners lost 450 billion rupees (US$ 10 billion) in the first quarter from selling fuel below cost.
Experts believe that inflation could rise by an additional 1 per cent, which will be passed and push the prices of other items. At present, India’s inflation is running at 9.06 percent.
Growth is expected to slow down to between 7.5 to 8 per cent during the fiscal year ending April 2012, down from 8.5 per cent between 2010-11.
The upshot is that if India does not stop inflation, price hikes will be higher than economic growth.
Overall inflation is being led by high food prices, especially staple food, which weighs more heavily on the lower and middle classes.
Prime Minister Manmohan Singh recently warned that the country's rapid economic growth is under "serious threat" from inflation. To tame inflation, the authorities have tightened monetary policy, raising interest rates 10 times since March 2010.
With money becoming dearer to borrow, investments have slowed down. Foreign direct investments fell by a quarter; they are US billion this fiscal year, down from US$ 25 billion in 2009-10.
Production costs are up since India imports 84 per cent of its oil and has no readily available alternatives. Its infrastructures are also in need of major overhaul and in large areas of the country power supplies are erratic, roads are in poor condition and water supply is uncertain.
With most Indians still into farming, they are vulnerable since 60 per cent of the country's farms are rain-fed without any irrigation facilities.
For India to grow, it must invest in every sector, but in order to do so it needs capital, much of which is now paying for direct subsidies and oil imports.
Finance Minister Mukherjee, in his 28 February budget, estimated a spending of 236.4 billion rupees on fuel subsidies in the year to March 31, less than the 383.8 billion rupees spent in the previous 12 months.
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