Inflation fears as India hikes fuel costs

NEW DELHI: Indians will have to pay more for fuel from Saturday after the government announced a hike in the price of some petroleum products, increasing inflationary pressures in the fast-growing economy.

Petroleum minister Jaipal Reddy late Friday raised the price of diesel by 3 rupees (7 cents) per litre, in a move that will pile added pressure on Prime Minister Manmohan Singh's embattled government.

The government also increased the price of kerosene by 2 rupees per litre, and of liquefied petroleum gas (LPG) by 50 rupees per cylinder, in a bid to cut its fuel subsidies and help state-owned oil firms, which currently suffer big losses by selling fuel to consumers at prices far below market rates.

Finance minister Pranab Mukherjee told reporters late Friday that the increase was "very modest," according to the Press Trust of India.

Mukherjee said the government had cut customs and excise duties on crude oil and petroleum products, giving up revenues of 490 billion rupees.

"I do hope the states will also reduce their VAT (value added tax) so that relief could be given to the consumer," he added.

The opposition criticised the price hike. The main opposition Bharatiya Janata Party (BJP) said there would be a cascade effect likely leading to increased inflation.

Annual inflation spiralled to a higher-than-expected 9.06 percent in May from 8.66 percent the previous month, heaping misery on hundreds of millions of India's poor.

The increase in the cost of kerosene, which is seen as the "poor man's fuel" could prove especially damaging for the ruling Congress Party, which counts the rural poor as a key electoral constituency.

Workers from the BJP and the communist parties said they would stage a protest in the capital New Delhi Saturday to protest against the fuel price hikes.

Prime Minister Singh has described inflation as a serious threat to India's growth, and his cabinet has been racing to boost vegetable and other supplies to bring down food prices.

Copyright AFP (Agence France-Presse), 2011