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Mar 03, 2010 at 05:33pm IST

Pranab gaining support on fuel price hike

New Delhi: Finance minister Pranab Mukherjee appeared to be closer to winning key political support for his controversial hike in fuel prices despite an uproar that forced the closure of Parliament on Wednesday.

Mukherjee's Budget move to raise fuel prices for the first time since July has met with anger from both the Opposition and ruling coalition allies, underlining the challenge in cutting the fiscal deficit from a 16-year-high of 6.9 percent of GDP.

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The government raised petrol prices about 6 percent and diesel by 7.75 percent in last week's budget to help increase revenues and cut the budget deficit.

NO ROLLBACK: Finance Minister Pranab Mukherjee listens to a question during a news conference.

But several allies, which help give the government a parliamentary majority, have signalled they will not withdraw support for the ruling Congress party on this issue.

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"There is no question of the DMK withdrawing support or the alliance breaking up," Kanimozhi, a senior leader of the DMK, a key regional party that backs the government in Parliament, was quoted as saying by the Hindustan Times newspaper.

Despite some concerns, the Congress party has not opposed Mukherjee's decision.

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"He (Mukherjee) did not talk about a rollback in the increase of fuel prices. He seemed to stand his ground," Jagdambika Pal, a Congress lawmaker, said after a meeting between the finance minister and Congress lawmakers.

The row is a test of how far the government can push reforms to liberalise state-regulated sectors like fuel. Strong opposition could make the government more cautious in moving ahead with further reforms such as price liberalisation.

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A final decision may only rest with Sonia Gandhi, head of Congress and India's most powerful politician who has a history of supporting pro-populist policies aimed at benefiting the poor, the base of support for the Congress party.

"Even the Prime Minister is in favour of the increase. Given that the allies have so far not been that strident, I feel the government will succeed in pushing through the decision," said D.H. Pai Panandikar, head of private think-tank RPG Foundation.

Congress lawmakers told Reuters Mukherjee argued that the hike in fuel taxes proposed in the budget was not new but only a partial rollback of fiscal stimulus announced last year to shield the Indian economy from the global financial downturn.

The government says the hikes will boost inflation by around 0.4 percent. Inflation is already at nearly nine percent, the highest in more than a year.

There is no danger of the government falling on the issue. But prolonged disruption of Parliament may further delay debate on bills on land acquisition and entry of private players into the pension sector.

India sets retail prices for fuel below market rates to protect citizens from higher prices and manage inflation, a subsidy that adds to New Delhi's fiscal burden.

But it now says it is considering giving up control of fuel prices to help rid itself of a crippling subsidy burden and cut the fiscal deficit to an estimated 5.5 percent of GDP in 2010/11.

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