Congress allies seek rollback of fuel price hike

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The Congress party is under pressure from its main allies to withdraw a hike in motor fuel prices, testing the government's commitment to a move that may add to inflation but is needed to cut the fiscal deficit.

Petrol prices rose about 6% and diesel prices by 7.75% after the government increased factory-gate taxes and import duties on the fuels as part of last week's 2010-11 federal budget which has stressed fiscal prudence.

But with food prices rising at an annual rate of nearly 20%, government allies Trinamool Congress and the DMK party, which give it a parliamentary majority, have said higher fuel prices will further hurt the poor.

"With price rise, the common man gets agitated. Even otherwise, rates are very high," said Trinamool chief and Railway Minister Mamata Banerjee, who has her eyes on winning local elections in her stronghold West Bengal next year.

DMK chief M Karunanidhi too has written to the government asking for a rollback as a measure of containing inflation, a politically charged issue that has given the opposition a weapon to attack the government and start street protests.

The government sets retail prices of petrol, diesel, cooking gas and kerosene to help control inflation and protect consumers, particularly the poor, from sharp fluctuations in energy prices.

But it now says is considering giving up control of fuel prices to help rid itself of a crippling subsidy burden and cut the fiscal deficit to an estimated 5.5% of GDP in 2010/11 from 6.9% this year.

While the allies' demand does not threaten the government's stability, the Congress party has been mindful of angering its core constituency, the rural poor, and has repeatedly given in to street protests over reform moves such as freeing up farm prices.

This has raised fears about political expediency trumping firm governance, slowing down reform moves that entail painful adjustments to freer markets.

The left-of-centre Congress party says it will try to convince its allies about the need to control deficit.

"This is a well considered decision and we are hopeful our partners will see the rationale," a senior Congress leader said, adding that a rollback would upset the new budget.

But a section of the Congress, more worried about spiralling inflation, is believed to be keen on rolling back the fuel price hike to blunt growing pressure from the opposition, which has repeatedly disrupted ongoing parliamentary proceedings.

"The prime minister and Soniaji will take a final decision on this," another Congress official said.