India Sharply Raises Fuel Prices

Unpopular Move Follows Heavy Losses at State-Run Oil Firms

NEW DELHI, June 4 -- With inflation soaring, the Indian government Wednesday announced the highest ever increase in retail fuel prices, triggering bitter political criticism and angry street protests.

After weeks of nervous caution, the petroleum minister said at a news conference that gasoline prices would rise by the equivalent of 55 cents per gallon, about 11 percent, and diesel by 32 cents, almost 10 percent, effective at midnight. The price of cooking gas cylinders is to rise by a little over a dollar, or about 16 percent. Fuel has traditionally been heavily subsidized by the government, which regulates prices to ease the impact on India's millions of poor.

In a televised address, Prime Minister Manmohan Singh said that the decision was inevitable and that Indians must "learn to adjust" to international economic conditions.

"There are limits to which we can keep consumer prices unaffected by rising import prices," Singh said somberly. "I know that the price increases we have had to announce today will not be popular, even though they are only modest. We remain dependent on imports. We are, therefore, vulnerable to global trends in oil prices."

The government will reduce import and excise taxes to soften the impact of rising oil costs on state-run refiners and oil marketing companies, which have been posting losses of about $1 billion a week.

"Our oil companies cannot go on incurring losses," Singh said. The government also promised oil bonds worth $22 billion to help compensate for below-market sales.

"We are helpless," Petroleum Minister Murli Deora said earlier Wednesday, calling the price hikes "the only option available."

Malaysia, meanwhile, announced a 40 percent increase in gasoline prices, effective Thursday.

In India, the response to the price hikes was both immediate and predictable. In several northern cities, protesters carried placards through the streets, shouting slogans and burning effigies.

In the past three months, inflation has surged to an annual rate of 8.1 percent, the highest since 2004, especially affecting milk, vegetables and cooking oil. The hike in the price of diesel, the country's preferred auto fuel, will further push up commodity prices. India imports more than two-thirds of its oil and is one of Asia's booming economies, growing at over 8 percent a year.

"This is a black day for us. This is an economic terror unleashed on the people of this country," said Rajiv Pratap Rudy, spokesman for the opposition Bharatiya Janata Party. "This will amount to an upheaval in the nation."

The criticism also came from allies in Singh's ruling federal coalition. The group of communist parties that back the government threatened to launch a week of nationwide street demonstrations, strikes and blockades of rail and road traffic. The government relies on the support of 59 lawmakers in communist parties.

The price hikes come during a busy political season in India, with four states going to the polls in November and the national elections scheduled for May 2009.

A statement by the Communist Party of India (Marxist) said it would "register the people's protest against this unjustified burden" and urged an immediate government review of the increases.

"The price hike is on expected lines and was unavoidable," said K.V. Kamath, president of the Confederation of Indian Industry, in a statement. He said the government was presented with a tough balancing act and called for long-term energy-efficiency strategies.

For many Indian families, however, there will be tough decisions and belt-tightening in the kitchen. Pushpa Tanwar, 27, lives in an extended family of eight in a semirural area on the outskirts of the capital. She uses one cooking gas cylinder per month.

"I was already coping with the rising prices of food and milk. Now I will have to conserve my cooking gas too," she said, adding that she would rely more on dried cow dung to fuel a mud stove. Such stoves, used in many poorer Indian homes, cough up poisonous smoke in unvented kitchens.

"It takes longer to cook on the mud stove, but I have no other choice," Tanwar said. "I will use the cooking gas cylinder only for special guests."