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Fuel hike sends Indians to the streets

By Harmeet Shah Singh, CNN
Activists from India's Bharatiya Janata Party (BJP) hold posters of cooking gas cylinders while shouting slogans during a protest against fuel price rises in Mumbai on June 26.
Activists from India's Bharatiya Janata Party (BJP) hold posters of cooking gas cylinders while shouting slogans during a protest against fuel price rises in Mumbai on June 26.
  • Opposition parties have called for a nationwide strike Monday over fuel price rises
  • India ended subsidies of gasoline and cooking gas, causing prices to shoot up
  • India PM: "Excessive populism should not be allowed to derail ... progress"

Mumbai, India (CNN) -- Usri Das Mahapatra's kitchen budget has soared the past year. Now, she fears worse.

India is moving to roll back fuel subsidies. The government recently lifted state controls on gasoline and is determined to market-link diesel prices as well.

But India's bold plans to reform the decades-old regulations are meeting stiff resistance. Opposition parties have called for a nationwide strike for Monday over fuel-price rises that threaten to stoke India's double-digit inflation further.

For citizens like Mahapatra, however, the move portends a bigger hole in her pocket.

The 46-year-old homemaker in Mumbai is bracing for a spike in her household expenses. An increase in fuel costs will create a ripple effect on the prices of food transported to her city from across India.

Her son, an undergraduate student, is also likely to be paying more for his commute. Traveling costs in the family car or spent eating out are already higher, she says.

Mahapatra, whose husband is an executive in a shipping company, is worried. "High inflation is hitting our savings. In a year, my kitchen expenses have almost doubled. This (fuel price) hike is unjustified," she said.

But planners say India's subsidies are too much for a nation that is facing a consolidated fiscal deficit of 8.4 percent.

Video: India hikes fuel prices
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  • Economic Issues

As world leaders pledged fiscal tight-belting at the G-20 summit in Toronto, India said it has its plans in place to halve its deficit in three to four years. Ahead of the summit, India cut subsidies which artificially kept cost of petrol lower than its market value -- as a result, the prices of gasoline and cooking fuel, like kerosene and kitchen gas, shot up.

"We have independently (prepared), even prior to the G-20 coming to this understanding (on consolidation), a roadmap which is designed to cut our fiscal deficit, Indian fiscal deficit, to half by 2013-14," said Ashok Chawla, the country's finance secretary, at the summit.

On his way back from Canada, Prime Minister Manmohan Singh identified what he called "excessive populism" as a key area to deal with in India's financial management.

Broadly, the South Asian nation spends heavily on subsidizing fertilizers, food and fuel.

India has also launched a range of state-funded programs to help millions of its people still living in crippling poverty despite the country's rise as an economic powerhouse.

But officials are aware benefits reach target beneficiaries in a trickle because of rampant corruption and weak enforcement.

"A bottleneck and an impediment in bringing about the desired results, for which policies and schemes have been formulated and huge allocation of funds made, is weak implementation and corruption in the system," noted Indian President Pratibha Devisingh Patil in her national address on her country's 61st Republic Day this year.

India's subsidy bill is about ten percent of its overall annual spending and about 1.72 percent of its GDP, said M. Govinda Rao, member of Singh's economic advisory council.

"When you can't expect revenues to rise very fast, it becomes important to reduce expenditure," said Rao, citing the country's targets for fiscal consolidation. "Our subsidy system is badly flawed."

Nonetheless, Singh's government, now in the second year of its second term in office, remains firm. "(O)ur people are wise enough to understand that excessive populism should not be allowed to derail the progress our country is making, and for which it is winning kudos internationally as well," the prime minister told reporters last week as criticism at home mounted over cutting fuel subsidies.