Published September 14, 2012
NEW DELHI – India's beleaguered government faced angry protests from its political allies as well as the opposition Friday after it raised the price of diesel fuel in a bid to curb a ballooning national deficit.
The government raised the price of diesel by five rupees (10 cents) a liter late Thursday. The price of diesel is regulated and kept much lower than gasoline prices in India. But the government has been under intense pressure to reduce its fiscal deficit by cutting spending for subsidies, particularly on fuel.
The subsidy reduction is part of the government's economic reform program. The delay in those reforms has been blamed in part on a sharp drop in India's growth rate and the rapid fall in the value of the rupee.
Concerned by India's massive subsidy bill, ratings agencies have threatened to downgrade India.
The government has also announced a reduction in cooking gas subsidies. The price of diesel — important for farmers' irrigation pumps and tractors, as well as trains and buses — is politically sensitive in India and both opposition politicians and coalition allies criticized Thursday's decision.
"It will affect the farmer, it will affect the common people," West Bengal Chief Minister Mamata Banerjee told CNN-IBN television channel. She demanded that the government withdraw the hike.
Banerjee, whose Trinamool Congress party is a key coalition member, said she had never been consulted on the price rise.
Another government ally, the Samajwadi Party, also demanded that the government retract the decision.
The opposition Bharatiya Janata Party also slammed the move and said it would add to the problems of India's poor.
The Congress Party-led government said that even with the increase in diesel price, the state oil companies would lose about 1 trillion rupees ($18.7 billion) this fiscal year.
A decision to limit to six the number of subsidized cooking gas cylinders available to each household a year would also leave the government with a shortfall of 320 billion rupees ($5.8 billion).
Last year, widespread protests forced the government to withdraw a decision allowing foreign supermarket chains like Wal-Mart to open stores in India.
But the diesel price increase was welcomed by business leaders and the Confederation of India Industries praised the government's "bold decision."
"(The) rationalization of fuel subsidies is a necessity from the point of fiscal consolidation," CII Director General Chandrajit Banerjee said in a statement.