India hikes fuel prices, stirs political anger, inflation worries

NEW DELHI - India's government on Wednesday boosted fuel prices for the second time in a year to stem huge losses at state-run oil firms, stirring widespread political anger and worries about higher inflation.

By (AFP)

Published: Wed 4 Jun 2008, 7:09 PM

Last updated: Sun 5 Apr 2015, 1:06 PM

The government's communist allies announced plans for a week of protests while the Hindu nationalist opposition Bharatiya Janata Party (BJP) called the hikes "economic terror."

India, which imports 70 percent of its oil needs to feed its fast-growing economy but is faced with surging global crude costs, raised petrol prices by five rupees (12 cents) a litre and diesel by three rupees -- or 11 and 9.4 percent respectively based on pump prices in the capital.

The increases were much higher than rises announced in February but not enough to compensate for the climb in global fuel costs.

"What the government has done, given the magnitude of the crisis, is not enough but is the maximum it could do in the current political context," said T.K. Bhaumik, economic advisor to Indian business lobby Assocham.

The move came as Malaysia also hiked petrol prices Wednesday, boosting them by 40 percent to 2.70 ringgit (0.84 dollars) a litre to check a soaring crude import bill. Indonesia boosted fuel prices by 30 percent in May.

India's left-leaning Congress government had been debating for weeks how to bail out state oil firms which sell fuel at hugely discounted, state-fixed rates to shield the poor from high fuel costs.

But it feared a voter backlash with national elections looming within a year and public anger already high over inflation, which is near a four-year peak of 8.1 percent.

Analysts forecast inflation in Asia's third-largest economy could increase to around nine percent in the coming weeks because of the fuel price hike.

The announcement pushed down Mumbai's benchmark 30-share Sensex index by 2.81 percent or 447.77 points to 15,514.79 on investor worries about more monetary tightening to tame inflation and higher costs that would hit profits.

Petroleum Minister Murli Deora insisted the government raised prices only "marginally" and was "committed to protecting the interest of the common man."

Kerosene prices, known as the "poor man's fuel", were left unchanged but the price of liquid petroleum gas (LPG) cylinders, also used for cooking, was hiked by 50 rupees.

Deora said there was no chance of any roll-back, with state oil firms Indian Oil, Hindustan Petroleum and Bharat Petroleum reporting total daily revenue losses of nearly 6.5 billion rupees (150 billion dollars).

"The (oil) companies were running out of cash," said M.S. Srinivasan, India's petroleum secretary, who also announced plans to scrap a five percent duty on crude imports.

But the communists who prop up the minority government in parliament saidthe hikes would "further aggravate" the "onslaught on the people" already suffering from steep food price rises.

They announced plans for general strikes on Thursday in three states they control -- Kerala, West Bengal and Tripura -- along with plans to block railway lines and roads to protest against this "unjustified burden."

The BJP, fresh from an election triumph last week in Karnataka, the first time it won a southern state, called the price hike "anti-people" and vowed to launch its own protests.

Prime Minster Manmohan Singh was due to give a televised speech late Wednesday to explain the reasons for the increase. Earlier he said the government could not allow the fuel subsidy bill to balloon further and India had to follow "prudent fiscal policies" to enjoy continued strong growth.

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