India: Getting Bankrupt With Montek, Man and PC At The Helm?

Rising Crude: Alternatives For GOI
Elections, Inflation and Bankruptcy

-Raise significantly, by atleast 20-30 per cent the price of Petrol and
Diesel.
-If it is done, Inflation rate will rise from 7.8 per cent to 12.8 per cent.
-Risk Withdrawal of support from Commies and Mayawati, and hence lose Delhi.
-Lose All State Elections that ensue in 2008 and the General Elections that
follow by mid summers.
-Do Nothing-Reverse FX flows, Ensure Rupee falls to Rs 75 to a dollar and Rs
150 to a pound and make GDP growth go negative and the Nation Bankrupt, just as
was the situation in the tenure of VP Singh and make Man take Gold for pledging
to the Swiss/IMF/World Bank combine just like he did in 1991.

Indian oil basket scaled $127/bbl on May 22. Yet the Indian consumer
continues
to pay an equivalent of $48.3/ bbl for auto fuels, kerosene and cooking gas.
What's more is that he will pay even lesser ie $38/bbl effectively in FY09 if
no price increase/ duty cuts take place!!

It must be noted that all three previous oil price spikes led to political
and/or economic crises, ie in 1973-75, 1979-80 and 1990-91. Can India remain
unscathed this time?

If oil prices sustain at these levels CAD will climb to an unprecedented level
of >3% of GDP while off-balance sheet issuances will scale ~5% of GDP - a
situation that could put downward pressure on INR & reverse Fx accumulation and
lower growth.

We have tried to explore the policy options of a govt that has its back to the
wall given unprecedented oil prices, high inflation and slowing growth besides 7
state elections in the run-up to General Elections in 2009.

We have quantified the implications of various policy options that the govt may
exercise.

Nothing in this article is, or should be construed as, investment advice.

Rohit