Developing Countries Hurt by Oil Spike

P. Chidambaram said developing economies were shouldering an "enormous burden" from the relentless rise in prices of food and commodities.

Speaking at a lecture at the Lee Kuan Yew School of Public Policy in Singapore, Chidambaram said the situation was worsened by the diversion of food to produce biofuels in some countries, citing the U.S. as an example, where he said it was estimated nearly 20 percent of corn goes to making biofuels.

"It is a sign of the lopsided priorities of certain countries that they will resort to measures that will produce fuel at a cheaper cost in order to meet the transport requirements of a section of their population even while a larger proportion of the world's population is deprived of food at reasonable prices or, as in the case of some countries, deprived of food altogether," Chidambaram said.

"I think it is outrageous and it must be condemned," he said.

Corn, soybeans, sugar cane and other crops are seen as sources of clean and cheap biofuels. This means less grain is available for human consumption, driving up prices for basic foodstuffs.

Chidambaram said the prices of maize, rice and wheat have at least doubled between 2004 and last month, while commodities such as crude oil and metals have doubled or tripled in price. This places a strain on the finances of countries like India, which subsidizes food and fuel.

Chidambaram said the rise in oil prices from about US$30 a barrel in 2004 to above US$100 this year is another example of "greed overtaking the common good of the world."

"Oil producing countries have struck a gold mine. Demand is very high ... they think that this is a great time to reap in the profits," Chidambaram said. "I understand that from a commercial point of view, but it's hurting the world economy."

Chidambaram also criticized American regulatory failures for the subprime mortgage crisis that has wreaked havoc in global financial markets and undermined India's own economic outlook.

"Who is responsible for the global uncertainty? The sub-prime mortgage market crisis that seems to have triggered the current turbulence is solely due to poor regulations and lax supervision," he said.

"Global slowdown, rising inflation and subdued interest in investment make for a combination that can have only negative consequences for developing countries," he said. "The consequences of the crisis are being felt in India too."

To mitigate the impact of a global slowdown, India is taking steps to attract investment while spurring domestic demand the moves include reducing the income tax, expanding the corporate debt market and increasing spending on education, health and infrastructure, Chidambaram said.

"It is our intention to keep the environment for investment helpful and friendly to investors so that the investment-led India growth story continues to unfold," he said.