India 68% increase in Oil Subsidies to $40 Billion but Stock Market rises 10% in 10 Days as Hot Foreign Money Flows in

India’s State Owned Oil Firms will see their Losses from selling Oil/Gas at subsidized prices rise by a whopping 68% to $37 billion in the current fiscal year.This is due to the fact that India’s Oil Sector is badly mismanaged with Diesel Guzzling SUVs getting subsides meant for the poor.The majority of the Oil Subsidies is pilfered by the Mafia which thinks nothing of burning honest officials.However India has been reluctant to reform one of the most important Energy Sectors of the Economy.With state elections in 5 provinces about to begin,the ruling party would not touch this hot potato anyway.Even in non-election times,nobody gathers up the courage to deregulate this sector.Note Petroleum is heavily taxed in the country and majority of the subsidies is earned back by the government in the form of taxes.The only people to gain are the adulterers and the mafia who have a massive billion dollar racket going on.

Oil firms to lose Rs 174,126 cr on fuel sales in 2011-12

State-owned oil firms will lose a whopping Rs 174,000 crore on selling fuel at government- controlled rates this fiscal, 68 per cent more than what they lost when crude oil touched an all-time high in 2008-09. Indian Oil, Bharat Petroleum and Hindustan Petroleum will “at current international crude oil prices lose Rs 174,126 crore in revenues on selling diesel, domestic LPG and kerosene below their imported cost in 2011-12 fiscal,” a government official said today. The revenue loss, termed as under-recovery by oil firms, will be the highest-ever, even more than what they lost in 2008-09 when crude oil touched an all-time high of USD 147 per barrel.

Increasing Oil Prices is the biggest Achilles Heel of the Indian Economy heavily dependent on imported oil products.The government will have to either raise the prices leading to adding fire to the already high inflation or compensate the badly bleeding half privatized Oil  Companies like IOC,BPCL and HPCL.These companies generally make massive losses despite having private investors apart from the government.Compensating these losses would lead to a higher fiscal deficit which would add to the inflation pressures anyway.Note a recent survey revealed that the Indian Middle Class has cut its expenditure on shopping,eating out and entertainment by a whopping 65% due to the high inflation.However the Indian Stock Market has seemingly discounted all these factors going up by 10% in 10 days on the back of a global rally.Bernanke Fueled Cheap Money is Circulating Hungrily across the Globe and currently India seems to be the fashion trend of the month.Note these hot money flows can reverse equally quickly leading to a sharp market crash just like the Jan-Feb one as fundamentals hardly support this kind of rally.With government intervention and distortions becoming the overriding factor in the stock markets,Free Markets and Fundamentals have taken a backseat.