Tough economic times in India in the midst of ferocious Nuclear debate

As the Indian government's energies are absorbed in the debate over India-US Nuclear agreement (123 agreement), the country's economy is showing serious strains. India's economy is now faced with trio challenges -- rising oil prices, worrisome inflation, and depreciation of Indian rupee.

This is not good news for the country, and not for the ruling coalition of parties who have to face the electorate in the next 8-10 months.

Just look at some of the data. Inflation is at an alarming 10-11 percent annual rate corroding the purchasing power of all the citizens. Food and energy prices are skyrocketing. India is seeking a consensus for a regulated bandwidth of price for oil.

The Indian currency -- Rupee -- is depreciating because of the inflationary pressures. The trade deficit is growing.

For example, on Monday, June 30th, the market capitalization of the Indian financial markets was about one trillion dollars. So was the size of the Indian economy. But on Tuesday, July 1st that was not the case.

Bombay Stock Exchange closed on June 30th with a market capitalization of about $1.02 trillion. On Tuesday, a fall of 500 points in the Sensex and a gain of 32 Indian paise (100 paise = 1 Indian rupee) for the dollar against the rupee saw that figure drop to $970 billion.

Similarly, India's Gross Domestic Product for 2007-08, valued at Indian rupees (Rs) 43,02,654 crore, translated into just over $1 trillion as valued at exchange rate on June 30th. With the dollar appreciating against the Indian rupees and crossing the Rs 43 bench mark on July 1st, the India economy was down to $995billion.

High oil prices have seen India’s oil import bill rise to $16.5billion for April-May this year, up 49 percent from the figure for the same months of 2007. As a result, the overall import bill has risen by 32% to $48.8b. Despite the fact that exports have grown at 22%, the trade deficit has risen to $20.6 billion -- up about 48 percent.

The widening trade deficit has added to the demand for dollars as against Indian rupees. So while the U.S. dollar has been generally depreciating against most currencies, it has been appreciating against the Indian rupee. The exchange rate is over 43 Indian rupees.