NEW DELHI, 4 June 2008 — The Indian government yesterday increased fuel prices to stem huge losses at state-run oil firms, stirring widespread political anger and worries about higher inflation.
Prime Minister Manmohan Singh sought to allay inflation fears saying India was vulnerable to global oil prices and an increase in domestic prices was inevitable, but the government would try to protect the interests of the poor.
“Our government is committed to ensuring that the impact of this global oil shock is minimal. We wish to protect as large a section of our society as possible from its effects,” he said in a televised address to the nation.
On the streets of the capital, New Delhi, Balaram, an office driver earning a little over $100 a month, and businessman B. Hans were in opposite corners.
While Balaram worried how to afford now more expensive cooking gas from his tight household budget, Hans, who drives a Mercedes, was more relaxed but said a lower rate of increase would have been good for those less well off.
“Already milk, vegetables, wheat — the price of everything has gone up so much,” Balaram said.
“And now gas and petrol. With my salary, after paying my rent and my expenses, what will I send home? How will I feed my family and what will I save?”
Hans, whose monthly fuel bill is more than Balaram’s salary, said, “Well, what can I say? We have to pay, you see, even if we don’t like to.”
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 Rs.5 (12 cents) a liter and diesel by Rs.3 — 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.
The decision was taken at a Cabinet meeting chaired by Prime Minister Singh after weeks of deliberation.
“We were left with no option,” Petroleum Minister Murli Deora told media after the meeting.
Explaining the hike in prices as moderate, Deora said: “We have not touched the common man’s cooking fuel, kerosene.” “Due to the relentless increase in international oil prices, it has now become necessary for the consumer... to shoulder a small part of the increased burden through a marginal hike in prices,” he said.
“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 adviser to Indian business lobby Assocham.
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.
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 rollback, with state oil firms Indian Oil, Hindustan Petroleum and Bharat Petroleum reporting total daily revenue losses of nearly Rs. 6.5 billion ($150 billion).
“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 said the hikes would “further aggravate” the “onslaught on the people” already suffering from steep food price rises.
They announced plans for general strikes today 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.
Blaming the government for not having touched the corporate sector, Abani Roy of the Revolutionary Socialist Party said: “The government has no concern about the common man. We will do whatever we can to force the government to review its decision.” Left leaders urged the government to review its decision on price hike. “The government should cut excise duties and impose windfall taxes on private companies,” they said.
Railway Minister Lalu Prasad’s party Rashtriya Janata Dal also joined the left in demanding the rollback of fuel price hike.
— With input from agencies
