India’s Congress party-led government increased prices at the nation’s fuel pumps on Wednesday, prompting a backlash from rival parties and threats of street protests.
The government raised retail prices of petrol, diesel and liquid petroleum gas by 8-17 per cent to reduce the burden of fuel subsidies expected to jump to $57.8bn this year – more than 3 per cent of gross domestic product.
India joins a host of Asian countries that have been forced to take the same politically unpopular step in recent days following a near doubling of global oil prices over the past 12 months to more than $130 per barrel.
Malaysia announced a 41 per cent price increase on Wednesday to reduce a subsidy burden estimated at $17bn this year while Indonesia raised prices by 29 cent last month and Sri Lanka by 14-47 per cent.
In a televised address on Wednesday night, Manmohan Singh, Indian prime minister, urged citizens to conserve fuel, saying the price rises were “inevitable” to relieve pressure on the state-run oil companies that have shouldered the burden of the oil price surge with the help of government bonds.
“I know that the price increases we have had to announce today will not be popular, even though they are only modest,” Mr Singh said.
India, which imports more than 70 per cent of its oil needs, has been under pressure to increase fuel prices for months.
But with inflation breaching 8 per cent in recent weeks, well beyond the central bank’s 5.5 per cent comfort zone, the government has delayed the move.
With an election due in less than a year, the Congress party-led United Progressive Alliance coalition government fears inflation will hurt the nation’s hundreds of millions of poor.
The government left the price of kerosene, the most important fuel for the poor, unchanged.
Crisil, a rating agency, estimated the price rises would cause an increase in inflation of nearly 1 per cent.
Economists described the latest price rises, which will reduce the subsidy by less than 10 per cent, as too small to be anything other than a “band-aid” measure.
“You’re not tackling the problem, you’re dealing with the symptoms,” said Rajeev Malik, economist with JP Morgan.
India’s leftist parties, on which the United Progressive Alliance coalition depends for its parliamentary majority, vowed to stage national protests.
Raising oil prices will have a “cascading effect and heap further burdens on the people”, said the Communist Party of India (Marxist), calling for a windfall tax on oil company profits.
The opposition Bharatiya Janata party, which has been gaining momentum in recent state elections, joined the attack.
“The prime minister, who has been hiding behind the growth rate for last four years, has completely ruined the economy,” said Rajiv Pratap Rudy, BJP national spokesperson.
Copyright The Financial Times Limited 2008
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