Byapaar.com -The Indian Business Blog

The Indian stock market is back to its normal bullish run again after a prolonged dull run. The BSE Sensex gained 551 points to close at 15049.86 on Monday, single largest gain in a day since July 23^rd, 2008 when the index surged 838 points. The index has been hovering around 14000 mark for long time. This bullish run has been due to rate-sensitive stocks and that of state owned oil and gas companies gaining ground as news of Hurricane Gustav sparing major US oil fields caused a further collapse of international crude price. The price of crude oil has been cooling down steadily after it hit high of $147.27 per barrel on 11^th July as Russia’s conflict with Georgia disrupted supply of oil and gas. Demand of fuel in US and China, the two biggest energy consumers has also softened the international market.

More than anything else, international oil price has single most important bearing on Indian economy as India’s 90 percent energy consumption depends on crude oil exports. Since oil prices started to soar, the country’s trade deficit has also been widening every month and it touched a record $10.80 billion for the month of July on higher oil import bill. Inflation has also been rising rampantly despite the government raising interest rates to check it. It also came down to 12.34, the first time in moths after a prolonged series of increase.

Now that everything is over, we can hope the inflation to come down to normal (4 to 5 percent), the trade gap to decrease, stock market to be buoyant and the overall health of the economy to become better.

Despite the decrease in the international crude price, the government has ruled out any slash in the existing fuel price. In a meeting with the media, Petroleum Minister Murli Deora told reporters

“Where is the scope for reducing prices? Oil companies are still making losses,”

Petroleum Secretary R.S. Pandey said that

“Oil companies continue to lose money on petrol, diesel, domestic LPG cylinder and kerosene. There has not been a substantial reduction in global prices to warrant a price cut,”

Airlines also announced that the fall in Air Turbine Fuel will not see an immediate reduction in air fares.

Traditionally, import of crude oil has occupied the lion share of India’s import bills and although India has been doing exceedingly well in other sectors in bringing down the trade deficit over the last decade, crude oil has always made Indian balance sheet look bad. Naturally, when the price of crude oil touched a record high of $122 per barrel, Indian government agencies and private businesses have been shivering for fear of a downturn of the whole economy.

Due to fear of inadequate supply of crude oil, its price has been riding fast and almost doubled during last 12 months. The recent hike is a direct result of production disruption in Kenya due to a strike and militant attack. The rising tension between the West and Iran has not helped things either with the world feeling jittery.

The effect is more pronounced in India as there is very little domestic production and India depends on crude oil import for almost ninety percent of its needs. So far Indian consumers have been enjoying a subsidized rate offered by the government and collectively shared by big state firms like Oil And Natural Gas Corporation (ONGC) and Gas Authority Of India (GAIL). It is estimated that the government will shell out as much as Rupess 1550 billion to subsidize the domestic oil market. Private companies dealing in retailing petroleum products are the most sufferers and Reliance has already closed all of its 1430 retail outlets all over the country because they are not subjected to price restrictions and are not entitled to receive subsidy. There is a huge gap of Rupees 8-10 between private retailers and that of public sector companies.

The steep rise in crude oil price has also affected other sectors in the Indian economy. The national currency is weakening and governments plan to restrict burgeoning inflation through strong Rupees has gone away with this latest development.

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