Petrol prices: Mamata issues ultimatum; PM defends price hike and deregulation

Petrol prices: Mamata issues ultimatum; PM defends price hike and deregulation

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New Delhi:  As the second petrol price hike in two months created talk of divorce within his government, the Prime Minister, who is at the G20 summit in Cannes, was firm.

"The move to decontrol petrol prices is part of the process of the direction in which we should move," said Dr Manmohan Singh.

"These are very sensitive areas, I have no hesitation in saying ultimately we must allow the markets to find their own level except for those commodities that are in the nature of semi-public goods.  The direction of change is quite clear, we must move in the direction of decontrolling more and more prices."

Arguing against subsidies, he said, "We cannot live beyond means and we have to recognize that money does not grow on trees. We have to get fiscal system in balance. If in the process we have to cut expenditure or cut susbidies, that's the only way you can manage your fiscal system."

But as always, the economics came with a helping of politics.

"Having said that," Dr Singh caveated, "what we should do at any moment of time is subject matter of political feasability. The timing is a matter which has to be carefully worked out. "

Dr Singh's defense came 24 hours after petrol prices were increased by Rs 1.82 a litre, the second raise in less than two months.  

The new prices kicked in at 12 am, leading to allegations of  a "midnight massacre" by the Opposition.

But it's the criticism from allies - especially Mamata Banerjee - that's hitting where it could really hurt.  This afternoon in Kolkata, Ms Banerjee warned the Congress that she may have to opt out of the government over not just the new price but the manner in which it was introduced.

Other allies like Sharad Pawar's Nationalist Conress Party (NCP) and Farooq Abudallah's National Conference said they had not been asked for their opinion.  By the evening, even the Congress' Abhishek Manu Singhvi said the party hopes the government will provide a "healing touch" and find a way to diminish the Rs 1.82 increase.

Ms Banerjee met with her MPs  this afternoon and then held a press conference where she said that  her party had not been consulted about the hike, and that her MPs are willing to quit the UPA if they are excluded from decisions like this one which affect the common man. "There is no way our MPs can defend this to our people," she said.  (Watch: Mamata warns government)

Ms Banerjee said she will take a final call on her party's participation in the Cabinet and the government after she meets with the PM upon his return from the G20 summit .

"The price hike may not affect the Centre or Delhi but it affects our people... we stand by the people," Ms Banerjee said, underscoring that the prices of fuel and products like cooking gas and kerosene have been raised 11 times in the last few months.

"We don't want to blackmail anyone, but we have tolerated a lot," she warned. With her 18 Lok Sabha MPs, Ms Banerjee is the Congress' largest ally and an indispensable part of the UPA.  

She may have delivered that message with restraint - she is known for her impatience and short temper - but her point was not subtle. Underscoring that the Congress needs her and not the other way around, she said that she can run the government in West Bengal without the Congress' support, but her party is key in propping up the UPA at the Centre.  

Another key ally- the DMK - agreed with her about the Congress not including other parties in key decisions.  "What Mamta says is correct. She has chosen to express her concern on lack of coordination within UPA," said the DMK's TR Baalu.    His party's collaboration with the Congress has in any case been strained by the arrest of Kanimozhi, the daughter of the DMK president.

The government had deregulated or freed petrol from all price controls last year.    A visibly upset Finance Minister Pranab Mukherjee sought to make clear that nobody in the government should be held responsible. "Please remember this is a decontrolled item, and the companies maintain petrol prices."

So far, petrol prices have been increased four times this year.  They were last increased in September by Rs. 3.14.   So now, in Delhi, petrol costs Rs. 68.64 as compared to Rs. 58.37 in January.  Bangalore is hit the worst; it now pays Rs. 75.64 per litre.

With so much heat on the issue, these state-owned oil companies that effected the Rs. 1.82 price hike yesterday, sought to present their case. Indian Oil CMD RS Batula said they had incurred huge losses because they are made to subsidize products like diesel, LPG and kerosene.

"We understand that these price hikes are steep and  inflation too is very high, but oil companies have incurred losses of Rs. 2,500 crores in the last seven months. If we continue to incur losses, either we'll produce less or then pass on the price hike to the consumer. We chose to keep supply of the product going. No organisation can continue to provide the product while making losses.  The moment we see a respite in prices we will be happy to reduce prices, he said.

Sources have said the three major state-owned oil companies - Indian Oil, HPCL and Bharat Petroleum - are discussing the possibility of a partial roll back.

Opposition parties don't need to pull their punches and they have not. From Mayawati in UP to J Jayalalithaa in Tamil Nadu lashed out at the Centre for the new price hike. And the BJP fielded former Finance Minister Yashwant Sinha, armed with numbers.  Mr Sinha amended his party's description of the price hike - this was not "midnight deceit," it was "midnight massacre", he said. If petrol was decontrolled he said, why had prices never been brought down yet, as had happened in neighbouring countries like Pakistan, he asked, flaying the government.

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