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INDIA : The Indian government's decision to hike fuel prices has been met with strong protests.
India freed fuel prices from government control and linked them to market rates last week. The move could prove risky for the government's future.
Consumers are feeling the immediate effects of the fuel price hike. Since the prices are linked to global rates, they could rise or fall every fortnight.
And costlier diesel will affect food prices because of high transportation costs. India, battling inflation rates of close to 10 per cent, will likely see another one percentage point increase because of the decision.
Uneven petroleum prices in different states of the country, along with cross subsidising at various levels, have promoted hoarding of petroleum products and leakages of revenue for a long time.
With the move, the government aims to save billions of dollars it gives in subsidy on fuel. It also believes the move will also make oil companies more competitive.
S Sundaresan, Secretary, Ministry of Petroleum And Natural Gas, said: "First in the case of petrol, it was decided that the price of petrol will be market determined, both at the refinery gate and at the retail level.
"On current prices of petrol, the under-recovery for the whole year is expected to be 7,000 crores of rupees (US$1.5 billion) and it is felt that the increase in price of petrol can be easily accommodated by the users of petrol in the country."
However, the decision to raise prices could create a political backlash for the government. It earlier held up the decision for lack of political will.
With the country's deficit growing, it had no option but to cut fuel subsidies.
The opposition parties have denounced the government's decision, threatening to hold nationwide protests against it.
The government, though, contends that it sees no point in subsidising people who have enough money to drive cars and bikes.
However, it will continue to subsidise cooking fuel, so as not to anger voters too much.
Mamata Banerjee, Chief, Trinamool Congress Party, said: "We are with common people and I think the price of diesel, LPG and kerosene is always linked with the common people's business, from kitchen to agriculture field, it affects."
The government's fiscal deficit has ballooned to 6.5 per cent of GDP. It aims to lower its deficit to around 5.5 per cent this year.
Stopping the fuel subsidies will save the government nearly a quarter of its annual subsidy bill on various products.
This is one of the biggest economic reforms undertaken by India since the government resumed power last year. It is a bold political move at a time when the country is facing nearly 10 per cent inflation.
Many people are angry at the sudden surge in prices, but the government said the move was painful, yet necessary.
- CNA/al
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