Political storm brews over fuel price hikes

Political storm brews over fuel price hikes

New Delhi: The government faces strong political opposition over a hike in fuel prices announced in last week’s Budget.

Here are some of the issues behind the storm.

Why does the government want to raise fuel prices?

The government raised petrol prices about 6% and diesel by 7.75% in last week’s Budget to help increase revenues and cut a budget deficit at a 16-year high.

India sets retail prices for fuel below market rates to protect citizens from higher prices and manage inflation, a subsidy that adds to New Delhi’s fiscal burden.

A recent government panel report urged freeing controls over automotive fuels, although the government has not taken any action on this politically charged, wider issue.

State oil marketing firms, partially compensated for selling fuel at subsidised rates, said prices had to be increased for them to protect their profits.

Cooking gas and kerosene prices — far more politically sensitive than motor fuel — were not raised in Friday’s Budget.

The government says the hikes will boost inflation by around 0.4%. Inflation is already at nearly 9%, the highest in more than a year.

Who opposes the rise?

The main opposition has come from the government’s two most important coalition allies, the Trinamool Congress and DMK parties.

Their leaders say the rise will hurt the poor most. Both parties are due to face state elections next year.

The ruling Congress party depends on the two groups, both regional parties, to help it reach a parliamentary majority of 272 seats. The Congress party has 208 seats. Trinamool has 19 and the DMK 18.

The main opposition group, the Hindu-nationalist Bharatiya Janata Party, opposes the hike. There have also been protests in some Indian states.

Several key Congress members are also reported to be pressing for a roll back, worried about losing support among poor voters.

Who supports the rise?

Prime Minister Manmohan Singh, one of the architects of the pro-market reforms of the 1990s, has said he will not roll back the hikes. Finance minister Pranab Mukherjee supports him.

What will likely happen?

The government will likely hold on to power despite the controversy. Both Trinamool and DMK benefit too much from being government allies. Both control powerful ministries they would like to keep.

The controversy is a test of how far the government can push reforms to liberalise state-regulated sectors like fuel. Stronger and growing opposition to the move could make the government more cautious in moving ahead with further reforms, such as price liberalisation in other areas.

Key to the outcome may be what Sonia Gandhi, head of Congress and India’s most powerful politician, thinks. She has a history of supporting pro-populist policies aimed at benefiting the poor, the base of support for the Congress party.

While Singh and Gandhi are close, they do sometimes have opposing political views. Gandhi is focused on winning elections. Singh, 77, is more concerned with securing his legacy in India and probably will not run in the next general election.

It is unlikely Singh will give in. But there could be a messy solution, with a partial rollback that allows both sides to claim victory. Expect a lot of political noise in the coming days.