The crisis in Libya is sending shockwaves across the global economy. On Thursday oil prices rose to levels not seen since the peaks of 2008. The rate for of Brent crude hit $119.75 per barrel during the day’s trade. Reacting to the spike, commerce secretary Rahul Khullar said that if prices remained at $100-120 per barrel, India’s annual crude oil bill would surge by up to 30%.
At present, India imports about 80% of its oil and is the world’s fourth largest importer. In just the first nine months of this fiscal, the country spent about $72.5 billion buying crude from overseas. Government-run oil companies are expected to notch up losses of about Rs100,000 crore this fiscal because they have to sell some fuels at subsidized rates.
And it isn’t just oil that’s getting more expensive, food inflation is on the rise for the first time in three weeks. India’s food price index rose 11.49% in the period to 12 February. The previous week it rose just 11.05%.
And Prime Minister Manmohan Singh has reiterated his promise to fight inflation. Speaking in the Lok Sabha on Thursday he indicated the upcoming budget could include measures to tackle rising prices. He said those reforms might involve changes to India’s public distribution system, which is often blamed for contributing to food inflation.
Singh also said his government was planning to introduce the food security bill. That legislation aims to give the poor wheat and rice at subsidized rates.
Turning to markets, the spike in oil prices sent Indian stocks plunging on Thursday. The Sensex went into freefall, losing 546 points to close at 17,632. And the Nifty tumbled 175 to wind up at 5,263.
Not surprisingly, oil companies took a beating on Thursday. Bharat Petroleum lost 4.26% on the BSE and stocks of Hindustan Petroleum were 3.4% lower by the end of the day’s trade.
Banks also lost ground because of concerns about economic conditions. ICICI Bank declined 5.43% to 953.45. And HDFC Bank lost 2.16% to 2,068.75.