Markets all over the world reeled. Indian oil-refining companies have run short of cash and there are actual cases of petrol rationing. If the market collapses from the current level, those five days in the third week of May would go down in history as the straw that broke the camel’s back. Crude futures have declined at the time of writing and are poised to retrace some of the $35 rally that started in April (partly because the world simply panicked). Meanwhile, the damage has been done.

The near-term sentiment has been badly hit and we think the market will have to do a lot of hard work to keep climbing against all odds. Inflation has taken firm hold of everybody’s mind as the most critical factor in the world economy now and nobody has any clue on how to bring it down. The answer is more supplies but we were so busy gloating about the how we will grow at 9% no matter what, that we forgot that a combination of venal politicians, anti-enterprise attitude of the State and virtually no new reforms under the great troika of reformists -- Dr Manmohan Singh, P Chidambaram and Dr Montek Singh Ahluwalia -- cannot act as the bulwark when the tide turns. We don’t know whether the tide has turned. But, in case it has, this government certainly has done nothing to prepare for it. Higher inflation will be tackled by bleating, moaning, higher government expenditure and lots of hot air.

There is a lot going for India still. The billions of rupees of income in the hands of employees in sectors like software, call centres, retail and finance have not reduced at all. So, a minimum amount of growth in consumption is guaranteed. But it is also true that five years of frenetic growth had meant ridiculous prices for very average quality of real estate and human resources and lots of wastage. Flab will have to be cut everywhere. It means adjustment at all levels. That does not make for a great mood for stock buying. Unless, of course, a wave of speculative money again hits emerging markets. -- D.B.