Will Congress pay for fuel price hike?

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The government finally showed the guts on Wednesday to raise fuel prices against the wishes of its own communist allies, but may struggle to sell the decision to an increasingly unhappy electorate.

Whether that will cost the centre-left Congress party power in national elections due next year remains to be seen, but rising inflation has left the opposition in the driving seat, political analysts said.

In truth, economic compulsions left the government with little choice on Wednesday but to bite the bullet on retail fuel prices, with oil companies on the verge of bankruptcy and the oil ministry pressing for an even bigger hike.

But the decision to raise petrol and diesel prices by around 10 percent was braver than most analysts had expected from a Congress-led coalition government with a reputation for avoiding tough decisions.

"The time had come when the Congress party had to show they were a leader of the coalition and not a puppet in the hands of their allies," said V.B. Singh, a political analyst at New Delhi's Centre for the Study of Developing Societies. "They have not succumbed to the allies as everyone thought.”

And the predictable backlash has already begun. Both the government's own communist allies and its chief rival, the Hindu-nationalist Bharatiya Janata Party (BJP), condemned the decision to raise heavily subsidized fuel prices, and called for street protests and strikes starting Thursday.

Many private sector economists meanwhile were unimpressed, and said more should have been done to prevent an ominous rise in government borrowing.

But some political analysts were a little more forgiving. "This is a courageous move and shows they have some degree of confidence they can take on the storm of protests which will follow," said Mahesh Rangarajan, a political analyst and history professor at Delhi University.

Inflation, already running at a 3-½ year high of 8.1 percent, is likely to rise further, especially as higher diesel prices feed through into transport costs.

Signs Of Hope

But Rangarajan said signs of strong economic growth and good harvests in key crops like rice and wheat seemed to have given the government some hope of weathering the storm.

"Obviously they have confidence this economic upturn will tide them through," he said. A year is a long time in politics. Although Congress has lost a string of state elections to the BJP in the past year, it has not given up hope of regaining the initiative.