| NEW DELHI
NEW DELHI Nov 4 India's government, already
under fire for raising gasoline prices, may delay a planned
diesel price hike for fear the move could cause further damage
ahead of key state elections beginning early next year, analysts
and other sources said.
Prime Minister Manmohan Singh's top coalition ally has
threatened to quit government if a hike in gasoline prices is
not rolled back. His own Congress party is wary of angering
rural voters, the main user of diesel, ahead of state elections.
"The timing may not be politically conducive to raising
diesel prices because elections are just round the corner," said
Kuldip Nayyar, a political commentator, echoing several other
economists and a top official at a state-run oil company.
"Diesel is a political commodity, and the government has way
too many problems now to invite more criticism for itself."
In a first indication the government could cave in to its
ally's demand, a source in the Congress party said on Friday a
partial rollback of the gasoline price rise was possible.
In India, the government sets retail prices of diesel,
cooking gas and kerosene to help control inflation and protect
consumers, particularly the poor, from sharp fluctuations in
global energy prices.
But it granted autonomy to state-run firms last year to fix
retail prices for gasoline and has said it is considering giving
up control of other fuel prices as it struggles to meet a
2011-2012 fiscal deficit goal.
Demand for diesel has soared in recent years thanks in part
to the subsidies that make the fuel more attractive than
gasoline for India's millions of new car owners, as well as for
farmers and heavy transport operators.
"It is always difficult to raise diesel prices as it is
widely used by farm sector and industry for transportation. It
is not perceived as a luxury fuel," said Victor Shum at Purvin &
The need to make a decision on diesel comes at a bad time
for Prime Minister Singh. His government is struggling to clear
its name in multi-billion dollar corruption scandals, while
inflation remains high and the economy is slowing.
But raising fuel prices now could be the government's last
chance to meet this year's fiscal deficit target of 4.6 percent
"The government may not meet the fiscal deficit target as
there are no revenue streams, no money from the dis-investment
programme," said an oil ministry official.
"But at the same time you look at inflation -- food
inflation is already double-digit, so it is difficult for the
government to raise diesel prices at this juncture," the
High global oil prices LCOc1 and a depreciating rupee
have worsened the finances of state fuel retailers, with
their revenue losses on subsidised fuel sales expected to cross
$26 billion this fiscal year ending March 2012.
($1 = 49.185 Indian Rupees)