Finance minister P. Chidambaram with ADB president Haruhiko Kuroda (centre ) and Japanese finance minister Sadakazu Tanigaki in Hyderabad on Thursday. (AFP)

Hyderabad, May 4: Globalisation may usher in a summer of discontent in India. Rising global crude prices and hardening interest rates could play party-pooper to the bull run on the Indian stock markets and create an inflationary spiral, affecting consumer markets.

Finance minister P. Chidambaram told the annual Asian Development Bank meeting here, ?There could be a spillover effect of global developments on domestic interest rates. It could also pose challenges for reserve management as currency values may fluctuate violently.?

A rise in US bond rates and a weakening of the dollar are widely expected as the giant economy tries to beat down a burgeoning capital account deficit which has proved to be so alarming that finance ministers from Japan and China chipped in to express their concern about it at a meeting here with US under secretary for treasury Tim Adams.

What Chidambaram and his team are really worried about is that higher US bond rates will mean an outflow of dollars from the Indian stock market, hitting the local bourses badly. It would also force India to raise interest rates to retain non-resident Indian bank investments here.

Foreign institutional investors, who pumped in nearly $11 billion into Indian stock markets last year, have already turned net sellers in recent weeks and can be expected to pull out more funds from emerging markets like India if the US government raises bond rates, posing a threat to the rise and rise of the sensex, the chief barometer of BSE.

Many analysts feel the market is already over-valued and a significant pullout by FIIs could mean a potentially embarrassing fall for the sensex. FII investments are far higher than foreign direct investment flows into India and bankers fear this makes India far more vulnerable to any pullout by foreign funds.

Simultaneously, higher global crude prices which are expected to be passed on to Indian consumers by mid-May once the current round of elections to state assemblies ends, are expected to create inflationary pressures here.

?It is logical to pass on (increase in oil prices to customers) and make special provisions where they are needed,? Planning Commission deputy chairman Montek Singh Ahluwalia said on the sidelines of the ADB meeting.

Higher energy prices translates into costlier goods and services, impacting consumer sentiment. Lower demand forces industry to go slow on future investments and hirings, impacting economic growth.

A senior finance ministry official, part of Chidambaram's entourage, said the problem has turned worrisome. ?For sometime now, oil futures contracts are quoting far above spot prices, which means the market expect high rates to be the order of the day,? he added. Iran?s standoff with the US on its nuclear policy is also expected to exert pressures on the already high oil prices, with some analysts predicting rates could touch $100 a barrel. An uncertain monsoon is also a worry.

for the Centre.

Though the Centre has put on a brave face against contradictory reports on the monsoon, top officials said in case inflationary pressures were detected, the government would resort to open market sales and greater distribution of grain through the public distribution system.

ADB has in a recent study warned that if oil prices continue to remain high, it will be forced to revise down India?s GDP growth projections.