Indian government hikes fuel prices to stiff opposition

New Delhi - India's ruling coalition Wednesday raised the price of petrol, diesel and cooking gas by between 9.5 and 17 per cent, prompting criticism from its leftist allies and opposition parties.

The move, due to come into force at midnight, is designed to curtail losses of state-owned oil firms, which buy crude at global prices but have to sell refined products at lower state-set rates.

Petrol, which costs 45.53 rupees (about 1.06 dollars) a litre in the capital, Delhi, will rise by 5 rupees, while diesel, which sells at 31.48 rupees, will go up 3 by rupees, Petroleum Minister Murli Deora Deora said.

Amid fears of the hike adding to currently high inflation and spiralling food prices, Prime Minister Manmohan Singh, in a rare televised address to the nation, described the hike as 'modest' and said the government had no choice.

He said the government would continue to provide a massive subsidy for importing crude oil in spite of the hike and urged citizens to conserve energy and use it efficiently.

Stating that India was not blessed with large oil resources, he said alternative energy sources had to be developed keeping in mind India's growth and the security of future generations.

'We cannot remain captive to uncertain markets and unsure sources of supply. We have to develop renewable sources of energy, including nuclear energy,' he said.

The UPA government's attempt to finalize a civilian nuclear deal with the United States which would allow the latter to export fissile materials and technology to India is on the backburner, owing to opposition by the government's left allies who provide crucial support in parliament.

The fuel price hike also came after two weeks of wrangling with the left parties which have now said they would hold nationwide protests against the hike beginning Thursday.

India's state-run oil companies had been lobbying for a 20 per cent hike, arguing they are losing 105 million dollars in the face of spiralling global crude prices that touched 135 dollars a barrel in May.

Some of the companies last week threatened to cap supplies if prices were not raised, saying they had funds for only two or three months of imports. India imports 70 per cent of its crude oil.

Analysts say the hike would certainly add to inflation, currently at 8.1 per cent, the highest in four years.

The left parties had wanted prices kept at current levels and oil company losses offset by cuts in customs duties and special taxes on corporations.

Opposition Bharatiya Janata Party spokesman Rajiv Pratap Rudy described the decision as 'economic terror unleashed on the country.'

The government has also decided to do away with customs duties on crude oil that stood at 5 per cent and reduced excise duty on petrol and diesel. The duty cuts would cost the exchequer an estimated 226 billion rupees, Deora said.

India has raised fuel prices only twice in two years and even on this occasion did not raise the price of kerosene, which the prime minister described as 'a vital fuel for the poor.'

Singh's Congress Party has lost several key state elections and surging inflation and now the oil hike is expected to have negative impact on its future electoral prospects.

A spate of state elections scheduled over the next few months and general elections are due in 2009.