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India imports nearly 75% of its crude oil requirements and controls the price of domestic fuel products to help contain inflation and protect the poor.

The latest increase is being heavily criticised by business leaders who say it will fuel inflation.

Communist parties, which support the government, are also opposed and plan nationwide protests over the move.

Many Indians are already lining up at petrol stations to fill up their vehicles ahead of the hike which comes into effect after midnight.

Losses

An increase in domestic fuel prices was long expected in India because of the record rise in global oil prices.

But this being an election year, the matter was debated for 10 days before the cabinet announced a 10% increase in retail fuel prices.

While petrol prices have been increased by five rupees (13 cents) a litre, diesel prices have been raised by three rupees (eight cents).

And a cylinder of cooking gas will now cost 50 rupees ($1.25) more than before. The price of kerosene remains unchanged.

India's Petroleum Minister, Murli Deora, said the move was necessary because state-owned oil companies were losing tens of millions of dollars.

"We were left with no option," he said.

"Due to the relentless increase in international oil prices, it has now become necessary for the consumer... to shoulder a small part of the increased burden, through a marginal hike in prices."

To offset their losses, the government has also agreed to cut the import duty on crude oil.

But already there has been strong reaction to the move.

Business leaders say it will increase inflation, which is already at a four-year high.

And India's Communist parties, which prop up the government, say they will hold nationwide protests from Thursday.

"The increase in the price of diesel, in particular, will have a cascading effect on all-round prices as the transportation costs will rise sharply," a statement said.

That is not good news for a government which faces a string of key state elections this year in the run-up to general elections, due in 2009.

How will this price rise affect you? Will your business suffer as a result? Send your comments using the post form below, or text 44 7624 800 100.

(BBC)

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