US, India, China and oil prices Thursday, May 8 2008 

The United States has spawned another debate after the one over food scarcity. It rightly points out that increased fuel consumption in India and China is one of the reasons for increase in crude oil prices. Yes, it is just one of the reasons.

But, the steep rise in oil prices began with American invasion of Iraq (See BBC report), and it is yet to end. Many have opined that the US attacked Iraq for oil and for fear of fall in value of dollar. (Reasons cited by the U. S. itself like presence of weapons of mass destruction in Iraq and Saddam’s terrorist links have since been disproved.)

The attack, apparently, only accentuated the problems. Increase in price of oil and fall of dollar is yet to be checked. Crude oil prices have increased from less than 30 dollars a barrel to more than 120 dollars a barrel. (Along with that terrorism shows no let up in Iraq. But the biggest failure of the U. S. in the Middle East is its failure to contain oil prices. The Arabs have beaten Bush in his neoconservative enterprise in the Gulf.)

Some facts should speak for itself (from the CIA Fact Book)
America with less than one third of the population of India consumes 20.8 million barrels of oil a day. This is eight times the consumption of India and one fourth of the world consumption. India consumes only 2.4 million barrels a day. European Union comes next to the U. S. with daily consumption of 14.7 million barrels. China is third with about 6.5 million barrels a day (in 2005).

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Let rupee appreciate, but check borrowings Thursday, Nov 8 2007 

Appreciation of rupee against dollar– chartThe appreciation of rupee is hitting exports, especially software and agricultural exports from India. Despite that, there is little reason to check the appreciation of the rupee resulting from inherent strength of the Indian economy.

However, rupee should not be propped up through borrowings. India has foreign exchange reserves of about 200 billion dollars. Out of this, external assistance and commercial borrowings constitute more than 50 billions.

There is no need to add to this while premature payments could be effected in case of existing loans. The country needs foreign exchange reserves to meet only six months imports (3 to 4 months according to the RBI). Balance can be used for infrastructure development.

Oversees Keralites will be hit by declining value of Gulf currencies against the rupee. But the purchasing power of men making their earnings within the State will increase. This is desirable when gap between gulf returnees and the ordinary folks in the State is increasing.

Related blog:

Falling dollar, rising India