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India's Diesel Price Hike Met with Backlash

Indian people pull a car by rope and shout slogans during a protest against the price hike in diesel and capping the number of subsidized cooking gas cylinders in Ahmadabad, India, September 14, 2012.
In India, the government is facing strong political opposition to its decision to hike diesel prices, which are heavily subsidized. The increase is being seen as a signal that the government is willing to push through unpopular reforms to jumpstart the country's lagging economy.

Protestors led by regional parties hit the streets in several cities including Mumbai and Kolkata on Friday demanding a rollback of the 14 percent hike in diesel prices, which has long been subsidized to benefit the India's transport sector.

The increase, the steepest in several years, is meant to cut the country’s growing budget deficit and reduce the massive losses being incurred by state-run oil companies.

Both allies of the Congress Party-led coalition government and opposition parties say the higher prices will hurt ordinary people, who are already coping with high inflation.

Venkaiah Naidu is a senior leader of the main opposition Bharatiya Janata Party.

Naidu says the hike in diesel prices will have a cascading effect on prices. It will increase prices of travel, bus tickets and food prices. He says they will also hurt farmers who use diesel to pump water for their fields.

However, the government argues that the price increase is inevitable in a country heavily dependant on oil imports.

“We import more than 70 percent [of our] crude oil. Prices of crude oil are going up in the international market. That is the reason the government reluctantly has increased the price of diesel,” said Rashid Alvi, a spokesman for the ruling Congress Party.

Analysts and economists agree. They have welcomed the price hike, saying it was necessary to plug one of the biggest drains on the government’s finances. Analysts say the move could ward off the risk of a downgrade in India’s investment rating by credit ratings agencies.

The hike in diesel prices is just one of several economic reforms that have been stalled for months. The government is also considering opening up the insurance, aviation and retail sectors to foreign investors. But as with the diesel price hike, there is strong political opposition to many of the measures.

The deputy chairman of India’s Planning Commission, Montek Singh Ahluwalia, says that pressing ahead with reforms is important to accelerate slowing growth.

“I think the diesel price hike yesterday is one of those tough decisions. But we need a lot of tough decisions,” he stated.

Analysts say recent corruption scandals that have hit the government have led to a virtual paralysis in policy-making and further contributed to lagging growth. But they are hoping the diesel price hike is a signal that the government will finally push ahead with some of these reforms.