Nov. 8 (Bloomberg) -- India must cut ``mounting'' subsidies, Prime Minister Manmohan Singh said, adding to signs fuel prices may be raised next week for the first time this year.

Food, fertilizer and oil subsidies will touch 1 trillion rupees ($25 billion) this year, Singh said today in New Delhi, reiterating the need to ``restructure'' them.

Reducing subsidies is unpopular in India, where the World Bank estimates more than half the 1.1 billion people live on less than $2 a day. India hasn't raised fuel prices this year as crude oil costs surged to a record, on concern it will stoke inflation and upset voters before state and national elections.

``We need to address the problem,'' Singh told the Planning Commission, which sets investment target guidelines for the government. ``It is important that we restructure subsidies so that only the really needy and the poor benefit from them and all leakages are stopped.''

Keeping fuel prices at their current limit will cost the government an additional $12 billion as subsidy in the two years ending March 31, equal to almost a 10th of India's annual budget.

India may next week allow the first increase in gasoline and diesel prices this year, allowing state-run refiners to partly pass on the record rise in crude oil costs to consumers, Oil Minister Murli Deora said yesterday.

Crude oil prices have risen 52 percent this year, inching close to $100 a barrel.

Viable Strategy

Planning Commission Deputy Chairman Montek Singh Ahluwalia said fuel price increases are a ``viable strategy'' to cope with the surge in crude prices.

``If oil prices are not increased, then you are running into hidden subsidy and one way or another you will not have resources'' for developmental work, Ahluwalia said. ``Any other option than increase of prices is professionally unsustainable.''

India's inflation slowed to 2.97 percent in the last week of October, falling below 3 percent for the first time in more than five years, the Commerce and Industry Ministry said today.

The current inflation rate is ``suppressed'' because it does not reflect the rise in global oil prices, Reserve Bank of India Governor Yaga Venugopal Reddy said on Oct. 30, while maintaining policy rates at a 5 1/2-year high.

India's Gujarat and Himachal Pradesh provinces are scheduled to hold elections by next month. Analysts expect national elections may take place before the May 2009 schedule because of widening differences on economic and foreign policy between the government and its communist allies.

----With reporting by Bibhudatta Pradhan in New Delhi. Editors: Mohideen (mjc/nmn/hgc/mjc).

To contact the reporter on this story: Cherian Thomas in New Delhi at cthomas1@bloomberg.net.

Last Updated: November 8, 2007 09:20 EST