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Opposition-driven protests over rising food prices erupted near parliament and in some towns of Orissa on Wednesday, posing a political challenge to the government's plans to liberalise fuel prices.
The ruling Congress party was due to meet later on Wednesday to debate a freer fuel pricing regime that is expected to lead to an immediate rise in prices of gasoline and diesel but also cut fiscal costs for the government.
Food prices are rising at an annual rate of nearly 20% in India, the highest in 11 years, and the government is under pressure to find a solution without hurting growth in an economy recovering from a six-year-low pace of growth.
Inflation has given opposition parties an issue on which to attack the ruling party, which draws its support from many of India's rural poor.
While about 5,000 supporters of the main opposition Bharatiya Janata Party (BJP) protested near the parliament, big demonstrations were also reported from Orissa.
Protesters, carrying the BJP's saffron flags, surrounded government offices in major Orissa towns waving posters displaying comparative food prices from previous years.
"The price rise is ... due to the totally inept handling and mismanagement of the economy and the government has practically allowed speculators to play havoc in the market," said Prakash Javdekar, a senior BJP leader.
Fuel price controls
The protests came as the oil minister said he would send the ministry's recommendations on a proposal to review fuel pricing to the cabinet.
A government panel has advised eliminating price controls for gasoline and diesel and an income-linked rise in kerosene and cooking gas prices.
The Congress, which won an election last year by a wider-than-expected margin, has political capital to expend to partly lift fuel price controls, leaving out potentially more politically jarring hikes in the prices of cooking fuels.
"The (fuel price) issue will drag on and I don't expect any significant increase," said DH Pai Panandikar, head of the private think-tank RPG Foundation.
A focus on inflation may also distract Congress from pushing reforms such as the liberalisation of the agricultural sector that may help cut the fiscal deficit, which is projected to rise to a 16-year high of 6.8% of GDP in 2009/10.
Food prices have been key to political survival in the past. Onion prices helped push out a state government in 1980.
Analysts say Prime Minister Manmohan Singh's government needs to walk a fine line, trying to please farmers, who want higher prices for their produce, and consumers, who want prices to fall.
"The challenge before Manmohan Singh is petrol and diesel prices have to be increased, while he also has to do a lot of explaining to the opposition and his own members who are not willing to accept a hike in prices," Panandikar said.
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