Indian economy was flying high some time ago but inflation was in control. We, along with China, imported large amounts of oil to meet our increasing energy requirements. Likewise we imported steel, machinery and airplanes. This led to global increase in prices of most primary commodities like oil, steel, cement, wheat and edible oils. Economy of the United States could not bear this heat. That economy was standing on a quicksand of debt already. The increase in price of oil and other commodities shook up the sands and that economy began to sink, American investors adopted a defensive posture and began to withdraw their investments from the Indian markets. The success of India and China contributed to this exit of foreign investors in no small measure.

Government also blotched up this success story. It was decided that our economy was standing on firm grounds and economic fundamentals were strong hence there was no compulsion to pass on the increase in price of oil to the consumers. Elections were due in about a year’s time and Government was already on the back foot on the nuclear deal. The Government wanted to avoid another reaction from the people due to price rise. The Government refused to face the increase in price of oil which occurred, in part, due to India's success. It refused to graduate to a high-inflation high-growth economy.

The spiral of price rise was not contained by providing cheap oil, however. The rise in commodity prices was widespread. It included almost all primary commodities like coal, steel, wheat and edible oils. Just as tires, silencer and gear oil-all get heated up along with the radiator in a fast moving car; similarly prices of other commodities rose in addition [o those of oil. Inflation continued to increase and crossed the 10 percent threshold despite cheap oil. It became necessary to control this price rise in order to protect the political fortunes of the ruling coalition. It was necessary to cool down the economy and contain the demand pressures to bring the prices down.

The pressure on prices arose from high rates of investment. The additional demand for steel, cement and oil was coming from the setting up of new factories. The two sources of such invest-ment were domestic and foreign. The Government raised domestic interest rates to give effect to foreign investment policy. At the same time it tried to woo foreign investors by speedily approving FDI proposals and making known its intention to increase foreign investment limits in insurance and other sectors. Foreign investors did not bite the bait.

The burden of importing oil expensive and selling it cheap ultimately falls on the Government. The efforts of the Government to kill domestic investment and make up by inviting foreign investment have come to a naught. Truly, foreign investment comes to take a share of the expected profits of domestic companies. Inflation continues to remain high despite selling oil at cheap rates. Foreign investors continue to flee despite killing domestic businesses. Reason is that the Government is not truthful. Government wants to keep the people in the dark and obtain their votes on the sly. It refuses to tell them about the true burdens of cheap oil. And the Government is giving false logic to the domestic businesses. It is telling them it is necessary to raise interest rates to control inflation; whereas truly speaking, this has become necessary because the Government wants to protect the interests of foreign investors.