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India to Raise Fuel Prices Amid Protest

The Indian government has indicated it will push ahead with its decision to raise fuel prices despite strong political opposition. The government says it wants to focus on strong economic growth and fiscal discipline to cut poverty.

Lawmakers from opposition parties led demonstrations and disrupted parliament this week demanding that the government roll back its decision to raise fuel prices.

Even the government's own allies have opposed the decision to hike gasoline prices by about six percent and diesel prices by about eight percent.

Opponents of the hike say it will fuel inflation, which is nearly nine per cent -- its highest level in more than a year.

But Finance Minister Pranab Mukherjee says the oil price hike is necessary to bring down the fiscal deficit, which is at a 16-year-high.

India subsidizes the prices of oil products such as gasoline, diesel, cooking gas and kerosene fuel to protect poor people from sharp fluctuations in energy prices.

But economists have been calling for an end to these subsidies. D.H. Pai Panandikar heads the private think tank, RPG Foundation.

"Subsidies put a burden on the budget, and worse than that, because the price of petroleum product is low, there is a temptation to consume more of petroleum products. So there is no effort to economize," he said.

The dispute over fuel prices will test the government's determination to push ahead with further reform of state-run sectors such as petroleum.

The government says as the economy returns to a high growth path, it needs to restore fiscal discipline and use the money saved on fuel subsidies to finance social welfare programs.

On Friday, Prime Minister Manmohan Singh told parliament that if economic growth continues to be strong and if the country manages its fiscal situation well, then it will be possible to soften "the harsh edges of extreme poverty" in about five years.

"We need to invest more in education, we need to invest more in health, we are doing that, we need to invest more in rural infrastructure, and urban infrastructure. We are doing that. But more needs to be done. Please help us to strengthen the growth impulses in our economy," he said.

Although strong economic growth has created a huge middle class, more than half of India's one billion plus people are still poor and live on less than $2 a day.