State-run Indian refiners, which cut petrol prices in June following public unrest, ordered a sharp 12-per cent hike in the rate of diesel on Thursday in a step that immediately drew angry reactions.
A petroleum ministry official told AFP the price of diesel has been hiked by five rupees, which equates to a 12-per-cent increase on the New Delhi city rate of 41.32 rupees (72 cents Canadian) a litre.
The Press Trust of India (PTI) said the decision on the expected increase was made at a cabinet meeting headed by Indian Prime Minister Manmohan Singh in New Delhi.
Kerosene prices, used extensively by the poor, were left unchanged, as was the cost of liquefied petroleum gas cylinders, also used for cooking but oil ministry officials said cooking gas bottles would now be rationed.
Petrol prices were untouched after they were slashed three months ago to mitigate a sharp increase in May that sparked public protests and anger among the government’s coalition allies.
The Trinamool Congress, a key ally of Mr. Singh’s multiparty administration, was the first to denounce the increase, the news agency said.
“We are unhappy. We will not accept it and demand its rollback,” said party president Mamata Banerjee, a fiery regional politician who is also chief minister of West Bengal state.
India’s main opposition Bharatiya Janata Party (BJP), which earlier this month led scathing attacks on Mr. Singh and his government in parliament over a multi-billion dollar financial scandal, also hit out at the rise.
“This is a cruel joke on the common man in the country,” BJP vice-president Mukhtar Abbas Naqvi said.
“We will not allow this hike … We will not allow this government to loot the common man like this,” the opposition leader warned.
India’s Communists also targeted Mr. Singh’s beleaguered government, arguing the increase would further spur India’s stubbornly high inflation.
“It will have an adverse effect on the prices of essential commodities which are already high. It will further increase hardship of common people,” Communist Party of India national secretary D. Raja told reporters.
India imports around 80 per cent of its oil needs and the import bill has risen dramatically because of high global prices and a plunging rupee.
State-run refiners complain that they are forced to incur massive losses due to government price controls that set selling rates below the international price.
Mr. Singh’s Congress-led government, which is scheduled to face general elections in 2014, deregulated petrol prices in 2010 in a reform aimed at reducing the subsidies it pays to state-run fuel refiners.
The high cost of imported fuel is partly blamed for the ballooning of India’s current-account deficit – the gap between exports and goods and services imports – to its widest level in eight years.
The government is also under pressure from ratings agencies and investors to rein in its subsidy bill to reduce a ballooning public spending deficit.
India’s once-booming economy grew by just 5.5 per cent between April to June – its slowest expansion in three years. Inflation remains high at nearly seven per cent.