Singh's Resolve to Rein in Spending Tested by All-India Strike Over Fuels

Indian cities limped back to life after a nationwide strike over fuel prices grounded flights, shut offices and triggered sporadic violence, forcing the government to defend cuts to subsidies that had protected the poor.

The main opposition Bharatiya Janata Party and communist parties, which independently called nationwide 12-hour stoppages until 6 p.m., said the stoppage has been a success as truckers, shopkeepers and government workers backed them to protest Prime Minister Manmohan Singh’s June 25 decision to stop subsidizing gasoline and diesel, a move to reduce spending that spurred the budget deficit to a 16-year high.

“People have expressed their anger and strong opposition to the anti-people policies of inflicting successive burdens on the people through price hikes of petroleum products,” four left parties, including the Communist Party of India (Marxist), said in a statement. The strike paralyzed life in states run by the BJP and two communist bastions.

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.

Photographer: Pankaj Nangia/Bloomberg

Indian Prime Minister Manmohan Singh speaks during the opening ceremony of the new Terminal 3 of Indira Gandhi International Airport in New Delhi. Close

Indian Prime Minister Manmohan Singh speaks during the opening ceremony of the new... Read More

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Photographer: Pankaj Nangia/Bloomberg

Indian Prime Minister Manmohan Singh speaks during the opening ceremony of the new Terminal 3 of Indira Gandhi International Airport in New Delhi.

‘Minimalist’ Increase

In New Delhi, a spokesman for Singh’s Congress party, Abhishek Manu Singhvi, accused the BJP of “hypocrisy and double standards,” saying it presided over larger increases in fuel prices than the “minimalist” ones announced by Singh when the party was in power from 1998 to 2004.

Today’s walkout showed “there is serious public discontentment” over rising prices, said Mahesh Rangarajan, a New Delhi-based independent political analyst. “It’s a test of government resolve to continue with next phase of reforms.” The strike cost the country more than 30 billion rupees ($641 million), the Confederation of Indian Industry estimated.

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.

Low Trading Volumes

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 828 million people who live on less than $2 a day. The government aims to lower the fiscal deficit to 5.5 percent of gross domestic product this financial year from an estimated 6.9 percent 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 that supported today’s one-day stoppage is the All India Motor Transport Congress, which represents 7,000 trucking and logistics companies.

Trains Halted

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 didn’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. State-owned Air India said in a statement its domestic flights, including from Kolkata, were unaffected by the strike.

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 percent in May. Consumer-price inflation for industrial workers climbed nearly 14 percent the same month, compared with 3.1 percent in China.

To contact the reporter on this story: Bibhudatta Pradhan in New Delhi at bpradhan@bloomberg.net

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