Singh's resolve to rein in spending tested by driver's fuel strike

Flights were grounded, companies shut offices and protests jammed roads across India as a strike over fuel prices tested the government’s resolve to rein in spending that has spurred the budget deficit to a 16-year high.

The main opposition Bharatiya Janata Party and communist parties, which independently called nationwide 12-hour stoppages, say truckers, shopkeepers and government workers are backing them to protest Prime Minister Manmohan Singh’s June 25 decision to stop subsidizing gasoline and diesel.

“Markets and schools are closed, buses are not plying, trains are stopped and there is thin attendance in offices in many parts of the country,” said Nilotpal Basu, a leader of the Communist Party of India (Marxist). “People are expressing their anger.” Some parts of the country were largely unaffected by the shutdown, a local television network reported.

Singh risked fanning the highest inflation rate in the Group of 20 nations to cut the government’s $5.5 billion fuel subsidy bill. While none of his coalition partners have backed the walkout, allowing fuel prices to be market determined may alienate the lawmakers from outside the ruling alliance he needs to secure a parliamentary majority and pass laws.

“The opposition parties are going to mount a huge offensive and the government will face protests and repeated disruption in parliament,” said N.R. Bhanumurthy, an economist at the New Delhi-based National Institute of Public Finance and Policy.

Damage to the government will be limited as “its biggest allies seem to be supporting the decision” to raise prices of petrol and diesel and, ultimately, remove all state controls on fuel rates, Bhanumurthy said.

Infosys Technologies Ltd. and Wipro Ltd., India’s second- and third-largest software exporters, closed their Bangalore offices, company officials said, as workers may find it difficult to travel. Eleven coal mines at Talcher in Orissa were shut as protesters enforced the strike, said Amalesh Kumar, a general manager at Mahanadi Coalfields Ltd., a unit of Coal India Ltd.

In Mumbai, India’s business capital, drugmakers Sun Pharmaceutical Industries Ltd. and Glenmark Pharmaceuticals Ltd. were among companies to tell office staff to stay at home, spokesmen said. Stock market volumes were “very low,” said Nilesh Karani, head of business development at Magnum Equity Broking Ltd., as clients extended their weekends.

Political parties had previously avoided loosening fuel price controls to win support from India’s 828m people who live on less than $2 a day. The government aims to lower the fiscal deficit to 5.5 per cent of gross domestic product this financial year from an estimated 6.9 per cent last year.

“Every time the government decides to increase prices it is the poor that get hurt the most,” said Sunil Singh, 28, who sells cigarettes on a street in the southern city of Bangalore. Among groups supporting today’s one-day stoppage is the All India Motor Transport Congress, which represents 7,000 trucking and logistics companies.

In the capital, New Delhi, BJP leaders held a rally at the famous Chandni Chowk market and metro trains were halted in some places. Private airlines won’t operate until 6 p.m. in the eastern city of Kolkata, a communist stronghold. As many as 84 flights into and out of Mumbai’s airport were canceled, Press Trust of India reported, without citing anyone.

“West Bengal and Kerala and cities like Mumbai and Hyderabad have come to a standstill,” Basu said.

At least 20m liters of fuel deliveries will be disrupted in Maharashtra as oil companies can’t truck in gasoline and diesel supplies to fuel stations, said Ravi Shinde, head of the Federation of All Maharashtra Petrol Dealers’ Association, representing 2,000 petrol pumps in the state.

Singh’s Congress-led coalition, which retained power at polls in April and May 2009, is seven seats short of a majority in the lower house of parliament, or the Lok Sabha, a position that has been exposed in recent weeks as the government was forced to backtrack on plans to reserve more seats for female legislators and open the South Asian nation’s nuclear energy industry to foreign equipment providers.

In April, Singh needed the backing of a regional powerbroker from outside the coalition to win a key budget vote, underlining how dependent his administration remains on smaller parties to govern.

Higher fuel costs may add almost a percentage point to India’s inflation rate, Kaushik Basu, chief economic adviser in the finance ministry, said. To cool prices, the Reserve Bank of India raised interest rates on July 2, almost a month before the central bank’s next scheduled meeting.

The benchmark wholesale-price index unexpectedly rose 10.16 per cent in May. Consumer-price inflation for industrial workers climbed nearly 14 per cent the same month, compared with 3.1 per cent in China.