By Frank Jack Daniel
NEW DELHI, Sept 14 India's beleaguered
government appeared poised on Friday to push ahead with measures
to revive the economy after months of dithering, even as it came
under heavy fire from allies and opponents alike for raising
heavily subsidized fuel prices.
A Cabinet committee was due to consider a proposal to allow
foreign airlines to buy shareholdings in local carriers and will
also discuss selling stakes in large state-run companies such as
Oil India. Another committee is due to speed up infrastructure
Two government sources said India was likely to announce
spending cuts on Saturday for the 2012/13 fiscal year to March.
India's inability in the past months to push through major
reforms and ease its subsidy burden has put it in danger of
becoming the first of the big "BRICS" emerging economies to see
its credit rating downgraded to junk.
India's decision late on Thursday to raise diesel prices by
14 percent, the first such move in 15 months, is aimed at
shoring up a weak fiscal position, but it has already come under
fire from the opposition and allies within the ruling Congress
party-led coalition who see a chance to hurt the government.
One powerful coalition partner vowed street protests from
Friday, and parties from Communists to right-wing Hindu
nationalists joined householders demanding a rollback on diesel
and on a cap in sales of subsidized cooking gas canisters.
"With the increase in diesel prices, children's school bus
fares are going to increase and prices of every essential items
will increase. God knows how we are going to manage with our
limited income," said housewife Manu Das in the northeastern
state of Assam.
Similar protests earlier this year over petrol price and
railway fare hikes prompted Prime Minister Manmohan Singh to
partially roll them back.
While the measures will add to inflation in the short term,
it will ultimately make it easier for the central bank to loosen
monetary policy and help revive investor confidence damaged by
political gridlock in New Delhi.
"It is a bold move, and will send a strong signal to the
Reserve Bank of India (RBI) on the government's efforts at
fiscal consolidation," said Anubhuti Sahay, an economist at
Standard Chartered Bank in Mumbai.
While most other G20 central banks are trying to ease
monetary conditions to counter a global slowdown, the RBI has
consistently flagged high inflation as a key risk to an economy
where growth is faltering.
Data due at 0600 GMT on Friday is expected to show wholesale
prices rose 6.95 percent year-on-year in August,
slightly higher than July's 6.87 percent, according to a Reuters
poll of 32 economists.
In the cabinet committee meetings later on Friday,
ministers will look at loosening rules that bar foreign airlines
from buying stakes in domestic carriers. At the moment foreign
investors, excluding airlines, are allowed to hold a cumulative
49 percent. If the proposal is approved, foreign airlines would
be allowed to buy similar-sized shareholdings.
INTEREST RATE MOVE?
The diesel decision was welcomed by investors.
India's benchmark BSE index rose 2 percent as of
0346 GMT led by the state-owned oil companies that are the main
beneficiaries of the new prices. Bharat Petroleum Corp Ltd
surged 4.6 percent.
"This is a positive signal because it shows the government
is ready to move. But this is only the first step, and lot more
needs to be done to bridge the fiscal gap," said Indranil Pan,
chief economist at Kotak Mahindra Bank in Mumbai.
Morgan Stanley, said the fuel price measure was "a positive
development" but did not change its estimate that the fiscal
deficit would reach 6.1 percent of GDP this year.
Some economists said Thursday's fuel price hike would have a
marginal impact on the deficit, which is at more than half the
full-year target of 5.1 percent of GDP in just first four months
of the fiscal year.
The government estimates the changes will reduce losses by
about 203 billion rupees ($3.66 billion) for the remainder of
the fiscal year. But a reduction in excise duty on petrol may
mean the net impact on government finances will be lower.
Even after the latest price hike, state-run oil marketing
companies will suffer losses of 1.67 trillion rupees in 2012/13
for selling fuels below market rates, higher than 1.39 trillion
rupees incurred a year ago, the government said.
On Monday, the RBI is expected to leave interest rates on
hold, although several market players said the diesel move adds
to the possibility of the first rate cut since April.
($1 = 55.4100 Indian rupees)
(Reporting by Rajesh Kumar Singh, Nidhi Verma and Manoj Kumar;
Writing by Tony Munroe; Editing by Alex Richardson and Ross