New Delhi: The government opened the way for a partial rollback of the steepest petrol hike in the country’s history after two days of street protests and dissent from within its own ranks over the unpopular measure.
State-owned oil marketing companies announced an 11% hike on Wednesday after a six-month freeze on rises, seeking to recover losses from higher global oil prices and a plunging rupee that have deepened the country’s trade deficit.
Oil minister S Jaipal Reddy
Oil minister S. Jaipal Reddy acknowledged the price increase was deeply unpopular but said the oil companies, which have not been compensated by the government for the losses, “are bleeding”.
“All political parties, including my party, are opposed to it, right? But we can’t run the country only on the basis of popular sentiment,” he told a news conference after returning early from a foreign trip to deal with the political fallout.
Senior members of the ruling Congress party, which wants to ensure its candidate is elected president in July, were reported to be unhappy with both the timing and size of the increase. The party’s allies in the coalition government complained they had not been consulted.
Reddy said the government would review prices “within days, not months”, after observing the impact of the increase, which led protesters to burn effigies of Prime Minister Manmohan Singh in rallies the length and breadth of the country.
In Odisha, protesters blocked roads and burnt tyres, while in Jammu protesters carrying placards demanding a reversal of the increase marched through the city.
An industry source told Reuters that petrol prices could be reduced by Rs 2-3 a litre if global oil and petrol prices, and the rupee stayed stable. The price increase announced on Wednesday was Rs 6.28 a litre, excluding taxes.
An announcement was possible before 31 May, when opposition parties have called for a nationwide strike to protest the hike, the industry source said.
The increase has been cheered by investors and economists who have been sharply critical of the government’s failure to take aggressive action to rein in ballooning budget and trade deficits at a time of slowing economic growth.
“Politics And Logic Don’t Go Together”
It was viewed as an important first step towards more meaningful reforms, such as increasing the price of heavily subsidised fuels, kerosene, diesel and LPG, which are used by the poor and in public transport. Investors hoped Singh’s government would move within days to lift the caps.
But the political furore over the price increase prompted a delay in a ministerial meeting due on Friday to discuss raising the prices. A finance ministry official said a new date for the meeting had not been set.
“The logic in favour of increasing the price of diesel, LPG and kerosene is unassailable. But politics and logic don’t go together,” Reddy said.
The postponement was a “serious setback for the government”, said N.R. Bhanumurthy of the National Institute of Public Finance and Policy.
The problem for Singh’s government is that increasing the price of diesel and cooking fuels could prove politically suicidal, alienating key coalition allies, especially Mamata Banerjee, the chief minister of West Bengal.
Banerjee, who has forced the government to flip flop on a string of policy issues, is due to lead a march in the eastern city of Kolkata on Sunday to protest against the petrol hike.
The government has budgeted just Rs 43600 crore ($7.77 billion) for oil subsidies this fiscal year, roughly two-thirds its bill of the previous year, which means it will need to cut subsidies or global oil prices will need to fall further and stay there.
Singh’s government has blamed the eurozone debt crisis for many of India’s economic woes but has also acknowledged the need for urgent action to encourage foreign investment to offset the current account deficit.
Underscoring souring investor sentiment in India, Goldman Sachs and Merrill Lynch revised down their economic growth forecasts for India for fiscal year 2013-14 to 6.6% and 6.5%, respectively. The government is still projecting growth of around 7%.