The government was confronted by strike threats and a political backlash yesterday after hiking the price of diesel by 12%.
Widely accused of policy paralysis, Prime Minister Manmohan Singh approved the rise at a cabinet meeting late Thursday despite protests from coalition allies and even an acknowledgment by his own party that it would cause pain.
However, newspapers said the move had become inevitable as state-run refiners had been incurring massive losses as a result of government price controls.
The move, which came into effect at midnight, sees a litre of diesel rise Rs5. The price of a litre in New Delhi had stood at Rs41.32.
Although the cost of liquefied petroleum gas cylinders, which are used for cooking, was left unchanged, the oil ministry said gas bottles would now be rationed.
Demonstrators took to the streets to express anger at the move, including a group of women who staged a cooking protest in downtown Mumbai, while transport workers met to discuss strike action.
The All India Motor Transport Congress (AIMTC), which represents about 11.5mn truckers, transporters and bus operators, said the cost of moving goods would increase.
The main opposition Bharatiya Janata Party (BJP) also hit out at the rise. “The diesel hike will have a cascading effect and prices of all essential things will go up,” said Narendra Modi, chief minister of Gujarat and a senior BJP figure.
Even the general secretary of the main governing Congress party, Digvijay Singh, voiced fears the rise could “hurt the farmers and common man”.
“At the same time, there are some unpleasant decisions that have to be taken by the government by taking an overall view of what is best for the country,” he added.