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Backlash after India hikes fuel prices

Sep 14 2012 08:31 AFP

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New Delhi - India's government faced a growing backlash on Friday after hiking diesel 12% in a desperate bid to reverse its economic woes, as opponents said the move would stoke broader price rises.

Widely accused of policy paralysis, Prime Minister Manmohan Singh approved the rise at a cabinet meeting late on Thursday despite protests from coalition allies and even an acknowledgment by his own Congress party that it would cause pain.

However newspapers said the move had become inevitable as state-run refiners had been incurring massive losses as a result of government price controls.

India buys in around 80% of its oil needs and the import bill has risen dramatically because of high global prices and a plunging rupee.

The move, which came into effect at midnight, means a litre of diesel will now cost an extra five rupees. The price of a litre in New Delhi had stood at 41.32 rupees (74 US cents) a litre.

The price of kerosene, used extensively by the poor, was left unchanged, as was the cost of liquefied petroleum gas (LPG) cylinders, also used for cooking, but oil ministry officials said cooking gas bottles would now be rationed.

The Trinamool Congress, a key ally of Singh's multi-party administration, was the first to denounce the increase.

"We will not accept it and demand its rollback," said party president Mamata Banerjee, who is also chief minister of West Bengal state.

India's main opposition Bharatiya Janata Party (BJP) also hit out at the rise.

"The diesel hike will have a cascading effect and prices of all essential things will go up," said Narendra Modi, chief minister of Gujarat and a senior BJP figure.

The general secretary of the main governing Congress party, Digvijay Singh, also voiced fears that the rise could "hurt the farmers and common man".

"At the same time, there are some unpleasant decisions that have to be taken by the government by taking an overall view of what is best for the country," he added.

The Congress-led government, which is scheduled to face general elections in 2014, deregulated petrol prices in 2010 in a reform aimed at reducing the subsidies it pays to state-run fuel refiners.

The high cost of imported fuel is partly blamed for the ballooning of India's current-account deficit to its widest level in eight years.

India's once-booming economy grew just 5.5% between April and June - its slowest expansion in three years. Inflation is running at nearly 7%.

The Times of India said the move would drive up food prices at a time when people are already struggling to make ends meet.

"The massive hike of five rupees in the price of diesel and the removal of subsidy on cooking gas beyond six cylinders will hit the common man, already caught in a price spiral, very hard," said the paper.

The Mail Today said in a front page headline that the move had sent family budgets "into tailspin".

"The move, aimed at cutting the losses of oil companies and reducing the subsidy burden on the government, has wreaked havoc on the monthly budget of ordinary households," the paper wrote.

"It means more pain for the common man.... But from an economic standpoint the decision was imperative as oil marketing companies were bleeding profusely."

A series of economic reforms have stalled in recent months owing to an impasse in parliament sparked by a scandal over the the awarding of coal mining concessions that has been dubbed "Coalgate".

"The government's economic managers, battling to reverse a severe slowdown that has hit jobs and income growth, have chosen to suffer short-term price pains for the sake of medium-term growth prospects," said the Hindustan Times.

Petrol prices were untouched after they were slashed three months ago to mitigate a sharp increase in May that sparked public protests and anger among the government's coalition allies.


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