Indian price hikes survive political jolt

India’s coalition government left in place an increase in the controlled price of diesel despite withdrawal of an allied party protesting the price move and related economic reforms (OGJ Online, Sept. 14, 2012).

The Trinamool Congress party pulled six ministers out of the cabinet and indicated it would fully withdraw from the coalition led by the Congress party of Prime Minister Manmohan Singh.

The move came a week after the Cabinet Committee on Political Affairs raised the price of diesel by 5 rupees/l., about 12%, to ease financial pressure on three state-owned oil marketing companies. The companies sell diesel, LPG, and kerosine at below-market prices set by the government. In addition to lifting the diesel price, the committee trimmed allocations of subsidized LPG.

The price adjustment was part of a package of reforms that included an easing of restrictions on foreign investment in retail, aviation, and broadcasting.

The government has taken these steps before in recent years but backtracked in the face of political opposition. Supporters of economic liberalization say the steps are urgently needed now in response to slowdowns in economic growth and foreign investment.

Disappointment over foreign investment within India extends to participation by international oil companies in exploration and production, which was to have been promoted by the New Exploration Licensing Policy (NELP) inaugurated in 1999. Response by non-Indian companies to nine NELP bidding rounds has been modest.

In late August, an official of the Ministry of Petroleum and Natural Gas said the government had begun preliminary work on an open-acreage licensing plan (OGJ Online, Aug. 28, 2012).

Because withdrawal from the ruling United Progressive Alliance by the Trinamool Congress didn’t pull other coalition members out, the government kept its majority in the legislature and escaped a no-confidence vote. The next national election must be held by the middle of 2014.

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