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India paying price for global oil speculation
June, 06th 2008

The government has bit the bullet and the cost of living has just shot up for people all over India. But there were few options before Prime Minister Manmohan Singh. With world oil prices having reached astronomical levels, the state-run oil companies could not have continued subsidizing supplies of petroleum products to the nation.

If left unchecked, the present situation would have led to oil companies going deep into the red - and that would have been an even worse disaster for the country.

The Congress party's worries over the impact on its prospects in next year's elections are evident as the prime minister felt the need to address the nation on the reasons for hiking fuel prices. Clearly it sees doom looming on the horizon.

With inflation peaking at about eight percent per annum despite the recent round of fiscal and monetary measures taken both by the government and the Reserve Bank of India (RBI), the UPA coalition can only pray that the hike in fuel prices does not push the price index to unbearable levels.

The Left parties have taken advantage of not being part of the government to call for countrywide protests against the latest price hike but need to take a look at the high sales tax levied on oil products by its own government in West Bengal.

The Bharatiya Janata Party (BJP), on its part, has pounced on the ruling coalition's discomfort with barely concealed delight, especially after its recent triumph in the Karnataka assembly elections.

But the fact is that the BJP-led National Democratic Alliance (NDA) government earlier also raised oil product prices several times during its tenure. This is despite the fact that it presided over the dismantling of the administered pricing mechanism (leaving commodity pricing to market forces) for the petroleum sector.

But during the year before facing the polls, it clamped down and refused to allow any price hike despite the pleas of the oil companies. This created an untenable situation for the new government ultimately and forced the UPA coalition to raise prices shortly after taking over the reins of power.

In fact, had both the NDA and UPA government raised fuel prices gradually over the past few years, there may not have been a need to effect such a big hike at one go right now. Political compulsions in for the form of both central and state elections have always been the factor deterring the government of the day from taking the hard decision to raise oil product prices.

As a result, the oil companies have ended up virtually subsidising the entire economy for the last few years. A complex accounting formula was evolved to ease their financial woes in the form of subsidy by the oil producing companies like the ONGC and Oil India as well as issuing oil bonds to be redeemed at a later date. This effort at postponing the inevitable could not be resorted to this time round with world oil prices scaling peaks of $130 per barrel.

Like all other countries, India also had to take the unpleasant decision of passing on some portion of the high crude oil prices to its citizens. And that too at a time when inflation has already been creating enough worries for policy makers.

On the plus side, however, the hike in fuel prices is not likely to affect the India growth story. The increase in LPG prices will impact largely on domestic households in urban areas, which is really why the UPA decided to take the big gamble of hiking prices by as much as Rs.50 ($1.25) per cylinder. The steep rise in petrol prices will, of course, indirectly affect auto manufacturers who are already gearing up for a slowdown in sales.

But the biggest impact on the economy will be in the case of diesel, which account for 40 percent of the total consumption of petroleum products. It is used not only for mass transport of goods by road but also by the railways and also by farmers for diesel generating pump-sets.

Even so, judging by the Reserve Bank of India's forecast, it looks as if the economy is still set on course for around 8 percent growth in the current fiscal, largely due to expectations of higher agricultural growth.

Industry may be affected by the increased costs of road and rail transport but prices of industrial fuels are not controlled and therefore most companies have already factored in the higher costs. In fact, what is hurting industry more than enhanced oil prices is the tight money policy of the RBI, which could affect growth prospects in the manufacturing sector.

Agriculture, on the other hand, has now become a brighter spot in the economy with food grain production having reached record levels this year. In case the monsoon is normal, one can look forward to continued high growth especially of rice production in the current kharif season.

What is also encouraging is that flows of foreign direct investment are continuing apace despite inflationary pressures on the economy. Besides, it is recognised that fuel prices are going up globally so any hike in oil prices is not likely to affect external perceptions of the Indian economy at this stage.

The actual villains of the piece as far as oil is concerned are international speculators who have pushed world prices up to astronomical levels. No country can remain immune to the impact of such volatility and people all over the world are paying the price for such speculation.

This government has signed its own exit : Advani

Pune, June 5 (IANS)Bharatiya Janata Party ( BJP) leader L.K. Advani Thursday came down heavily on the government for hiking fuel prices and warned that the move would lead to the ruling coalition's downfall.

"This government has signed its own exit," Advani said. "It is going to have a cascading effect on prices of all commodities."

Advani was speaking on the sidelines of a function where a book on Arvind Lele, a late BJP leader, was released.

On the stalled Indo-US civil nuclear deal, he said: "We are for buying nuclear fuel from the US required for our nuclear reactors. But we want to renegotiate the whole deal."

He said India should not be forced to keep away from further nuclear tests in exchange for nuclear cooperation with the US.

PM's plea on petrol prices a 'condolence speech': Jaitely

Lucknow, June 5 (IANS) Bharatiya Janata Party (BJP) general secretary Arun Jaitely Thursday described Prime Minister Manmohan Singh's explanation on the fuel price hike as a "condolence speech."

Jaitley was referring to the prime minister's address to the nation Wednesday evening where he said that the hike was inevitable but had been kept marginal.

Jaitely, who is also in charge of the party's Uttar Pradesh unit, told reporters that Manmohan Singh was now an economist without any ideas. This was reflected in the soaring prices of essential commodities.

He said the Congress-ruled United Progressive Alliance had failed not only in checking the prices of various commodities but was also responsible for increasing terror attacks in the country.

"The credibility graph of (Congress president) Sonia Gandhi, her family and Manmohan Singh have also fallen," he said.

The central government Wednesday hiked the price of petrol by Rs.5 a litre and of diesel by Rs.3 a litre. Each cooking gas cylinder will cost Rs.50 more.

Jaitely, who was in Lucknow to meet the party's state office-bearers for the Lok Sabha elections 2009, said the BJP would have no truck with the Bahujan Samaj Party (BSP) after bitter experiences with the latter in the past.

Asked if former prime minister Atal Bihari Vajpayee, a MP from Lucknow, would contest in 2009, he said: "I won't reply to this through the media."

In reply to another question, he said if needed the BJP would field in the 2009 elections some of its veteran leaders from the Rajya Sabha.

Jaitely said that the claimants to power in New Delhi would be between the BJP-led National Democratic Alliance and the Congress-led United Progressive Alliance.

Strike against fuel price hike paralyses Left-ruled states

New Delhi, June 5 (IANS) A day-long strike called by Left parties against the central government's fuel price hike paralysed normal life in the three Left-ruled states of West Bengal, Kerala and Tripura, with flight and train schedules affected in Kolkata and Agartala.

A day after the government announced the fuel hike, protest demonstrations were held by the Bharatiya Janata Party (BJP) and other opposition parties in other states, while in some places the activists burnt the effigies of Prime Minister Manmohan Singh.

In the three Left-ruled states, the strike was complete with shops, business establishments and educational institutions remaining closed. Streets were deserted and vehicles remained off the roads to oppose the United Progressive Alliance (UPA) government's decision to increase the prices of petrol by Rs.5 a litre, diesel by Rs.3 per litre and cooking gas by Rs.50 per cylinder.

While the BJP joined with the communists in Kerala and Karnataka in the protest Thursday, the main opposition Trinamool Congress in West Bengal and Tripura would observe a shutdown Friday.

In West Bengal, cadres of the ruling Communist Party of India-Marxist (CPI-M) squatted on railway tracks, pulled passengers out of taxis, picketed before railway stations and took out processions waving red flags as the administration remained a mute spectator.

Markets and business establishments remained closed, raising the hackles of industrial honchos. In Kolkata, flight schedules went haywire and train services came to a halt as the strike paralysed life across the state.

Passengers had a trying time at the Kolkata international airport as flights were cancelled, while train services were disrupted in both south-eastern and eastern railways.

"These shutdowns send wrong signals. Regular work atmosphere comes to a halt due to these sort of agitations," Ambuja Realty Group chairman Harshvardhan Neotia told IANS in Kolkata.

The governments in West Bengal and Kerala played their part in ensuring the shutdown was a success by keeping the state-run transport services off the roads.

"We had no option but to protest in this manner because several of our suggestions were being continuously ignored by the Manmohan Singh government," said Paniyan Ravindran, Lok Sabha MP from Thiruvananthapuram.

University examinations, which were to be held Thursday, were postponed in the three states. However, the Kerala State Public Service Commission decided not to postpone its scheduled interviews.

In Tripura, most markets, shops and business establishments, government and semi-government offices and educational institutions were closed. Roads wore a deserted look.

Bus services between Tripura and Bangladesh and other northeastern states were cancelled.

National carrier Alliance Air and other private airlines either cancelled or rescheduled many flights on the Agartala-Kolkata-Guwahati-Silchar routes.

"The strike is peaceful across the state and no untoward incident was reported from anywhere in the state," said police spokesman Nepal Das in Agartala.

Even the World Environmental Day celebrations were affected in Tripura. The government has postponed the programmes to Saturday.

India's IT hub Bangalore and the rest of Karnataka Thursday showed little signs of being hit by Wednesday's fuel price hike which has made both petrol and diesel the costliest in the country. Bangalore roads were as usual choc-a-bloc with public and private vehicles. Educational institutions, commercial establishments, banks and offices functioned normally.

Reports from other major towns of Karnataka like Mangalore, Mysore, Hubli, Shimoga, and Gulbarga said life was normal.

However, the BJP, CPI-M and Socialist Unity Centre of India (SUCI) staged demonstrations in Bangalore and several district headquarters to protest the hike.

In BJP-ruled Madhya Pradesh, Chief Minister Shivraj Singh Chouhan and several of his cabinet colleagues pedalled to the state secretariat to highlight their protest. The chief minister and IT Minister Kailash Vijayvargiya, Cooperatives Minister Gopal Bhargava, and Water Resources Minister Anup Mishra, along with others, cycled five-km to the state secretariat.

In Jharkhand, the activists of the opposition BJP and Jharkhand Vikas Morcha (JVM) observed a 'black day', burning effigies of Manmohan Singh.

In the Congress-ruled Andhra Pradesh, the main opposition Telugu Desam Party (TDP), BJP and Left parties along with their trade unions staged protests in the state capital Hyderabad and other major towns.

The TDP, CPI and CPI-M have called for a state-wide shutdown in Andhra Pradesh Friday, while the Telangana Rashtra Samiti urged people to observe a strike in their stronghold regions. The BJP also announced that it would block trains on Friday to protest the price hike.

Fuel price hike correct decision, won't aggravate inflation: Ahluwalia

New Delhi, June 5 (IANS) Asserting that the fuel price hike will not aggravate inflation, Planning Commission deputy chairman Montek Singh Ahluwalia Thursday said economic growth would remain on track.

"It is a correct decision. The fuel price hike will not aggravate inflation compared to what would have happened had the government not hiked fuel price. Inflation will not cross double digit, and will rather be lower four months down the road," said Ahluwalia.

His assessment came a day after the government hiked the price of diesel and petrol Rs.3 and Rs.5 per litre, respectively, while raising cooking gas price by Rs.50 per cylinder.

"The prices of crude oil have been doubled over the years, and India imports 75 percent oil from the world market," Ahluwalia told reporters on the sidelines of a function here.

Ahluwalia, a close confidant of Prime Minister Manmohan Singh, also said the economy would continue to grow at eight percent annually.

"Let me tell you that we are not living in a vacuum. India is not the only country in the world that is facing a sharp increase in fuel prices. I think what the government did is absolutely correct, and balanced."

Ahluwalia said the fuel price hike in India was one of the least in the world, and pointed out that the price of kerosene had not been raised, mainly because the poor used it.

"Increase in diesel (price) is very modest, and we should be informing the people that price rises have been larger in Sri Lanka, Indonesia, Pakistan, Bangladesh, Thailand, Malaysia and Taiwan."

The Plan panel functional head said there was no alternative before the government in view of the skyrocketing international crude prices.

"We don't want to have a situation where by not increasing fuel price, the oil companies go bankrupt, and you have shortages. Nor is it viable to keep oil subsidised through budget, which will lead only to general inflation," he said.

Would inflation touch the double-digit mark?

"I certainly hope inflation does not cross double digits,? Ahluwalia said. ?The fuel hike can have a half percent direct effect on inflation, but eight percent growth is on target. It is a fantastic growth rate."

"The government has taken a number of measures to bring inflation under control. We have to be patient. The fuel price hike is a sensible policy and four months later inflation will be lower. That could not have been possible if we did not take the step," Ahluwalia said.

And what about fiscal deficit?

"It is likely to be a little more than what has been set out in the budget,? Ahluwalia conceded. ?We have not made any assessment so far. The finance ministry is looking at it."

He said the end result depends not just on oil bonds, but also on what is happening elsewhere.

"If growth is very good, revenue is buoyant, then there will not be much effect. If growth slows down, we can have different effect. The problem is being created because the world oil prices have doubled."

Madhya Pradesh chief minister cycles to protest fuel hike

Bhopal, June 5 (IANS) Madhya Pradesh Chief Minister Shivraj Singh Chouhan and several of his cabinet colleagues Thursday evening pedalled their way to the state secretariat on cycles to protest the hike in prices of petroleum products.

The Bharatiya Janata Party (BJP) ministers led by Chouhan started from the Chief Minister's House at 4 p.m. and took nearly half an hour to travel the five km stretch to the state secretariat. The physical effort was evident from their faces, and some even alighted from their cycles and walked, but they did not give up.

Prominent among the ministers who joined the protest were IT Minister Kailash Vijayvargiya, Cooperatives Minister Gopal Bhargava and Water Resources Minister Anup Mishra.

Chouhan termed the unprecedented hike in the prices of diesel, petrol and cooking gas by the central government as a "body blow" to the people. He said it would make the life of the poor next to impossible, and also lead to hardship for the middle class and other sections of people.

Urging the prime minister to immediately roll back the prices in the larger interest of the people, the chief minister remarked that it appeared that Prime Minister Manmohan Singh was more concerned about the loss to oil companies than the common people.

Strike against fuel prices rise brings Tripura to a halt

Agartala, June 5 (IANS) Life came to a standstill Thursday in the northeastern state of Tripura as the ruling Left Front called a 12-hour general strike to protest the hike in prices of transport fuel and cooking gas.

Opposition Trinamool Congress has also called for a dawn-to-dusk strike across the state Friday on the same issue. The central government Wednesday announced an increase of Rs.5 and Rs.3 per litre in prices of petrol and diesel respectively, and a hike of Rs.50 per cooking gas cylinder.

Most markets, shops and business establishments, government and semi-government offices and educational institutions remained closed in the state. Roads wore a deserted look. Rail and air traffic services were disrupted.

Bus services between Tripura and Bangladesh and other northeastern states were cancelled.

Government-run carrier Alliance Air and other private airlines either cancelled or rescheduled many flights in the Agartala-Kolkata-Guwahati-Silchar routes.

"The strike is peaceful across the state and no untoward incident was reported from anywhere," said police spokesman Nepal Das.

"The dawn-to-dusk strike was total with people expressing their agony over the central government's decision to raise the prices of petroleum products," said Gautam Das, state spokesman of the Communist Party of India-Marxist (CPI-M), the main member of the ruling Left Front.

In view of the strike, the Tripura government postponed Thursday's World Environment Day programmes to Saturday.

Examinations at educational institutions, including Tripura University, have been deferred in view of the shutdown.

Calling a 12-hour shutdown Friday, state's Trinamool Congress chairman Arun Chandra Bhowmik criticised the Left Front's muted response to the price hike and termed it a "government-sponsored holiday", as the Left supports the central government.

Reacting to the government's decision to increase the prices of transport fuel and cooking gas, Tripura Chief Minister Manik Sarkar said the move would further push up prices of all commodities.

The CPI-M alleged that the central government had acted in the interest of private oil companies and big businessmen.

But the chief minister said it would not be possible for the Tripura government to cut sales taxes on fuels.

"If the Tripura government cuts tax on petrol and diesel, implementation of social and service-oriented programmes for the welfare of the people would be badly affected as Tripura depends on the central government for financial support," said Sarkar, also a member of the CPI-M Politburo.

Delhi reduces tax on cooking gas by Rs.40, no bus fare hike

New Delhi, June 5 (IANS) Heeding the central government's plea to lower sales tax on petroleum products to reduce the burden of the fuel price hike, the Delhi government Thursday announced a cut of Rs.40 per cylinder on cooking gas. Bus fares are also not to be increased.

?The decision has been taken in view of the centre's request to states to reduce sales tax on petroleum products, thereby minimising the financial burden on the people,? said Chief Minister Sheila Dikshit.

Dikshit also said that there would be no increase in bus fares.

The price of a cooking gas cylinder in Delhi will now be Rs.304.75 against Rs.344.75 as decided by the government Wednesday. Before that, a cooking gas cylinder cost Rs.294.75 in Delhi. The central government Wednesday announced a hike of Rs.5 per litre on petrol, Rs.3 per litre for diesel and Rs.50 per cooking gas cylinder following spiralling prices of global crude.

The decision to reduce sales tax by Rs.40 was taken at an emergency cabinet meeting chaired by Dikshit. The meeting also decided to ban foreign visits by state delegations till the next order.

?Our government is determined to do everything possible and ensure that the people do not feel the burden of inflation. The price of crude oil has sky-rocketed, and hence we are constrained to retain Rs.10 as sales tax on each cylinder. It is minimal, and the people of Delhi will appreciate it,? Dikshit told reporters after the cabinet meet.

Prime Minister Manmohan Singh Thursday wrote to all union ministers, urging austerity, while Petroleum and Natural Gas Minister Murli Deora Wednesday called upon the states to reduce sales tax on petroleum products.

Dikshit said she would shortly hold a meeting with state-owned oil companies - Indian Oil, Hindustan Petroleum, and Bharat Petroleum - to work out modalities to implement the cabinet's decision at the earliest.

Asked if her government would consider lowering sales tax on petroleum and diesel as well, Dikshit said her government was alive to the problems being faced by the people, and would do the needful as and when needed.

She said that more and more economy measures would be taken to curb unnecessary government expenditure.

?As a first step, we have decided that no delegation will be allowed to go abroad. The government will also closely monitor the ongoing trend of state expenditure and rationalise it as far as possible,? Dikshit said.

The West Bengal government has also slashed sales tax on petroleum products.

Protests against price hike in Andhra, shutdown Friday

Hyderabad, June 5 (IANS) For the second consecutive day protests against the steep hike in petroleum prices continued across Andhra Pradesh even as the opposition parties called for a state-wide shutdown Friday.

The main opposition Telugu Desam Party (TDP), the Communist Party of India (CPI), the Communist Party of India-Marxist (CPI-M), the Bharatiya Janata Party (BJP) and trade unions staged protests in the state capital and other major towns.

Staging sit-in on roads and holding novel protests with bullock carts, the leaders and activists of these parties raised slogans condemning the central government for burdening the common people.

TDP, CPI and CPI-M have given a call for a state-wide shutdown Friday while the Telangana Rashtra Samiti (TRS) has urged people to observe the strike in Telangana region.

BJP also announced that it would block trains Friday to protest the price hike.

TDP president N. Chandrababu Naidu pedalled a cycle rickshaw during a protest in coastal Andhra. He appealed to the people to make Friday's shutdown a success.

Naidu, who is currently on a state-wide 'yatra' (tour), told a news conference at Bheemavaram in West Godavari district that both the central and the state government had burdened the people. The former chief minister said the sales tax on petroleum products in the state was the highest in the country.

TDP activists staged a sit-in in front of Secunderabad railway station here leading to tension. As the protest led to a traffic jam, the police arrested TDP legislator T. Srinivas Yadav. This led to a scuffle between the police and the protestors.

BJP leaders and activists staged a novel protest in the state capital. A four-wheeler was pulled by a bullock cart while women cooked on wood fire on the road to protest the price hike. Similar protests were also held in Karimnagar.

TRS women activists staged a protest in Karimnagar and stopped a truck carrying gas cylinders. The police arrested about 50 protestors.

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