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Journalism of Courage
There is nervousness bordering on panic in the market reflected in the fall of the rupee to record lows and the crash in equity prices. There has been plenty of bad news already. What remains to be learned is whether and by how much the Union government intends to raise petroleum prices. Ram Naik said last week that a price hike was one of the options his ministry was examining and a final decision awaited the prime minister8217;s return from Washington. The market seems to have taken for granted that high international oil prices are here to stay and the government will have no choice but to raise domestic prices. But the government would be wise to pause and study other options before rushing to raise petroleum prices immediately. The consequences of another price hike at this stage would be very serious for the economy and the rupee. The early signs of economic recovery are beginning to fade as industry sputters again, business confidence is shaken and uncertainty grows about the impact of competition fromimports. Saudia Arabia, the biggest oil producer in OPEC 8212; though not Iraq and Iran 8212; is committed to increasing output to push down prices. That could have an effect over the next few weeks. So waiting a while makes sense.
Global sentiment has been hit hard by the relentless rise in international oil prices. Even though OPEC announced it would raise supplies by 800,000 barrels per day starting on October 1, prices have touched an unimaginable 37 per barrel. This latest oil shock is reverberating around the world in protests across Europe, corporate warnings in the US and fears of a slowdown in the world economy if high oil prices persist. Everyone has been affected, developing countries most of all. India runs the risk of being caught in the pincers of a rising rate of inflation and falling rupee so policy-makers should tread carefully.
