The recent slide of crude prices as against wider expectation of trading in the range of $120-130 per barrel has its origin in news about another wider belief in commodity trading community that spending of gasoline in US will be low in the wake of impending recession. So speculation about low gasoline demand on account of recession fear in US has brought down the crude prices in US and hence crude is trading at a low note in US and other commodity exchanges in the world. How long low crude prices will continue nobody has answer to. Will crude continue to slide below $100 barrel or will it rebound once again to $120-130 per barrel zone, is a million dollar question.

 

In such a situation countries like India are caught between the devil ad the deep sea. On one side falling crude prices will bring some relief to the government which will see factorizing it into crude import bill of the country and thereby have some cooling effect on scorching inflation, which according to some economists may shoot beyond 13 per cent in the next few months before cooling down.

 

On the other side US recession will have an adverse impact on our export since US is among our main destination for exports and it will be difficult to achieve the target of $200 billion this financial year.

 

Apart from that regulatory decision to control inflation which has forced the economy into the high interest regime which has widened the interest rate gap between India and other countries like US and Euro Areas which may augment the capital flow once again in India to take advantage of the high interest rate in India. This capital flow may rejuvenate the recent Forex reserve loss of the country by $10 billion but on the other side will erode the competitiveness of the Indian exporter also as the recent weakening of rupee will vanish with the strengthening of the rupee. Despite the recent 7-8 per cent weakness in the rupee our exporters are complaining that increased domestic input cost due to high inflation has taken away the advantage of rupee breaching the Rs. 42 mark and touching a psychological level of Rs. 43 per dollar.