July 5, 2010 / 8:01 AM / 10 years ago

India fuel strike bites as tests resolve for reforms

NEW DELHI (Reuters) - Opposition workers set buses on fire and hurled stones as a nationwide strike over higher fuel prices shut down parts of India on Monday in a test of the government’s efforts to cut subsidies and trim a budget deficit.

Police use batons to disperse Samajwadi Party activists during a strike against the hike in fuel prices in the northern Indian city of Lucknow July 5, 2010. REUTERS/Pawan Kumar

The response to the strike, the biggest by the opposition in recent years, was mixed and analysts said the government was unlikely to back down.

There was a total shutdown in opposition-ruled states. However, business was mostly normal in regions ruled by the Congress party that also heads the central government.

Many flights were canceled and streets emptied in response to the strike called by the main opposition Hindu-nationalist Bharatiya Janata Party (BJP) and the leftist bloc as the Congress attempts to push key reforms in Asia’s third-largest economy.

The Congress-led government is expected to stick to its decision, encouraged by tacit support from parliamentary allies and the fact the strike was successful only in opposition strongholds.

“This is a case where the opposition has come together on an immediate issue, but it doesn’t mean this will bring pressure on the government to rollback the hike in petrol prices,” said D.H. Pai Panandikar, head of private think tank RPG Foundation.

“The need for fiscal prudence is far greater than populism and the government understands that.”

The government retained power last year largely on a social spending agenda but says it must curb costly subsidies to stay on target to cut the fiscal deficit to 5.5 percent in 2010/11.

Fuel subsidies in the year ending March 2010 were roughly 1 percent of GDP. Higher fuel prices will add nearly one percentage point to headline inflation now at 10.16 percent.

On Monday, businesses were largely shut in financial capital Mumbai, though stock and bond markets were open.

One industry lobby put the cost of the strike at more than $640 million in lost business across India.

Most coal and iron ore mines and ports in eastern India functioned as usual, apart from some disruptions in ore transport in Orissa state, officials said. Several key spot markets for commodities were closed.

In eastern West Bengal state, a communist bastion, supporters took to the streets. The IT-hub of Bangalore in BJP-ruled Karnataka state, most software firms closed. In the Congress-ruled capital New Delhi, the underground train service was briefly disrupted.

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Signaling the government’s resolve, Finance Minister Pranab Mukherjee said there was no question of reversing the price hike which on Friday helped prompt the central bank to raise interest rates by 25 basis points, nearly a month ahead of a scheduled policy review.

With an eye on elections in the coming months, the Congress party’s allies will publicly complain about inflation but analysts said that they still support the measures.

However, they are likely to be less supportive of more painful reforms that Prime Minister Manmohan Singh wants to push through, such as opening up the insurance and banking sectors and which could face strong opposition in the next parliamentary session starting on July 26.

Additional reporting by Rina Chandran, Bappa Majumdar, Jatindra Dash, Abhijit Neogy, Ruchira Singh, C.J Kuncheria and C.K. Nayak; Editing by Alistair Scrutton and Jonathan Thatcher

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