Despite anger, govt to survive fuel hikes

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June 29, 2010 11:05 AM EST

The government has seized a window of opportunity to hike fuel prices, taking advantage of a lull before major state elections and an opposition struggling to find its feet after defeats at the polls in 2009.

Opposition parties, and members of Prime Minister Manmohan Singh's coalition, have slammed the hike as an attack on people's pockets. The main opposition Bharatiya Janata Party (BJP) is coordinating a strike with regional parties.

They may also may disrupt reform bills in the next parliamentary session in July, stalling measures such as opening up the insurance sector, but the Congress-led coalition may stem a voter backlash by upping social spending.

"The hikes have given the opposition an ideal opportunity, but I don't think it will amount to anything," said political analyst Amulya Ganguli.

"People have woken up to the fact that you can't go on subsidising petrol. I don't think the BJP and the Left will gain anything in the long run."

Friday's hikes in petrol, diesel and kerosene prices were seen as a bold attempt to tackle India's fiscal deficit. The reform also sat well with the G20 summit in Toronto, which urged the phasing out of fossil fuel subsidies.

The hike sparked low-level protests and strikes in states including Kerala, Orissa and West Bengal over the weekend.

"A nationwide strike is on the cards," said Prakash Javdekar, a spokesperson for the BJP, without saying when such as a strike could take place.

The CPI(M), India's biggest Communist party, said it would take also "mass action" but had not decided whether it would join an India-wide strike.

A regional party, the RJD in Bihar, will push hundreds of motorcycles in a protest on July 10 to highlight what they say the man in the street can no longer afford.

But their vocal opposition hides the fact that the BJP has been hit by internal squabbling and does not get on well with the opposition communists.

There is also a get-out clause. The government has already said it would intervene if crude prices rise sharply. What that means is unclear, and it could be used politically to justify an increase in subsidies.

TROUBLE IN PARLIAMENT

Adjusting fuel prices to markets could also stoke headline inflation that is already in double digits, a problem the opposition has already used to protest against the government.

Singh's government fended off a challenge to its rule in a parliamentary vote in April over tax rises in the budget.

Bills, including one that is crucial to a civilian nuclear deal with the United States, have been blocked by the opposition and unruly allies in walkouts and shouting matches.

Raising the price of kerosene will hit the poor, while spiking diesel rates will impact farmers and raise transport costs for food -- hitting the kinds of voters who handed the left-of-centre Congress party a second term last year.

But the spike will also free up extra cash for Congress to push its social welfare schemes, including a food security bill championed by party chief Sonia Gandhi.

The move towards freeing up fuel rates was also pushed through at a time when Asia's third-largest economy is rebounding from the global slowdown, with the government forecasting growth of around 8.5 percent in this fiscal year.

"The Congress leadership has taken a calculated risk based on an understanding that the current rise in food and manufacturing inflation rates is partly being caused by a robust rise in household incomes across rural India," the Financial Express wrote in an editorial on Monday.

"Politically, the Congress is saying that double-digit inflation will have to be tolerated in the short run. It is this line of thinking that has emboldened the (government) to raise oil prices."

Opposition parties are also facing their own problems.

The Communists, who once held a grip over government policy and stymied reforms before quitting the coalition in 2008, could face their first electoral defeat in four decades in state elections next year in their stronghold of West Bengal.

The BJP, meanwhile, has just come out of a high-profile spat with a powerful regional ally in Bihar.

"The opposition is in a bit of disarray right now," said political analyst Mahesh Rangarajan. "There is room for reform in the government. One year into the government's second term there is a tilt towards reform."

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