New Delhi: Prime Minister Manmohan Singh began a meeting with the biggest ally in the federal coalition government on Tuesday to heal a rift over a fuel price hike last week seen as crucial to shrink a widening budget deficit.

Mamata Banerjee, whose Trinamool Congress party governs the eastern state of West Bengal, has threatened to pull out of Singh’s United Progressive Alliance (UPA) last week unless he reversed a rise in gasoline prices.

Prime Minister Manmohan Singh . PTI

Banerjee has demanded a Rs19,000 crore ($3.9 billion) package for her heavily indebted state, according to Indian media reports. Party sources told Reuters on Tuesday that the exact details of a package were still being worked out.

“She wants to be populist, without thinking of the consequences," said D.H. Pai Panandiker, the head of the RPG Foundation, a New Delhi-based think tank.

“She wants all the goodies, and she does not want to accept that everything has a price, that nothing comes for free."

The package could include a “credible economic recovery programme" to beef up West Bengal’s manufacturing industry and infrastructure, Dipak Dasgupta, the principal economic adviser to the ministry of finance, told Reuters.

Freeing up heavily subsidised fuel prices is viewed as a badly needed measure to help tame India’s fiscal deficit, which swelled to nearly 71% of its full-year target in the first half of the year.

Rattled by street protests and facing major state elections next year, Congress party chief Sonia Gandhi may feel the need to shore up the government’s centre-left credentials.