CONGRESS ON THE DEFENSIVE WITHIN ITS COALITION

C O N F I D E N T I A L SECTION 01 OF 04 NEW DELHI 004200

SIPDIS

SIPDIS

E.O. 12958: DECL: 06/15/2016
TAGS: PGOV PINR ECON EINV EFIN ELAB EPET ENRG IN
SUBJECT: CONGRESS ON THE DEFENSIVE WITHIN ITS COALITION
OVER PETROLEUM PRICE HIKES

REF: NEW DELHI 4062

Classified By: A/PolCouns Atul Keshap for reasons 1.4 (B,D)


1. (C) Summary: Congress is feeling increasingly isolated,
as regional parties nominally part of the UPA openly join BJP
and Left Front (LF) protests against the recent petroleum
product price hikes. The Prime Minister on June 7 asked the
Ministry of Petroleum and Natural Gas (MPNG),s Secretary to
stand firm on its decision to raise the
government-administered price of gasoline (petrol) price by
4.0 rupees (USD 0.09) per liter and diesel by 3.0 rupees (USD
0.07) per liter (septel). The Administered price of LPG
(liquid petroleum gas) and kerosene were not raised and those
are consumed in many Indian homes as cooking fuel. A June 13
"nationwide agitation" organized by the CPI(M) involved not
only the LF allies but key regional parties. In Uttar
Pradesh (UP) the regional Samajwadi Party (SP) worked closely
with the Left to sponsor a statewide protest. In India, two
thirds of the population barely survive on two dollars a day
or less and price rises cut deeply and quickly lead to
popular protests that can bedevil governments. The petroleum
product administered-price hikes quickly induced merchants to
raise the open-market prices for staples such as rice, flour,
and onions upon which the poor rely. Reeling from the
President's rejection of its "offices of profit" bill and the
controversy over its reservation policy, Congress is behaving
more like a party struggling to consolidate slipping support
among key coalition members than a party in solid control.
Meanwhile, the fuel controls imposed by the state not only
cause political headaches but cost the taxpayer USD 19
billion in 2005 that could have gone to health or education.
End Summary.

The Left Calls a Strike
--------------


2. (U) Although it ostensibly supports the UPA coalitions,
the Communist Party of India Marxist (CPI-M) organized a
nationwide "day of protest" on June 13 in support of its
demand for an immediate "rollback" of UPA price hikes on
petroleum and diesel. In addition to the parties of the Left
Front (LF) the CPI(M) enlisted the following regional
parties: the Samajwadi Party (SP) of Uttar Pradesh (UP),the
Telegu Desam of Andhra Pradesh (AP),the Rashtriya Lok Dol
(RLD) of Bihar and the Janata Dal Secular of Karnataka. The
entire LF leadership participated in an anti-UPA rally in New
Delhi and, along
with about 1,000 party members, were briefly detained by
police.

And Raises the Rhetoric Level
--------------


3. (U) In his address to the rally, CPI(M) General Secretary
Prakash Karat railed against the "anti-people" policies of
the UPA and ridiculed attempts by Congress-ruled states to
alleviate the burden of price increases by reducing state
sales taxes on the additional charges. Karat emphasized that
only New Delhi could help the common man adjust to spiraling
petroleum product prices by restructuring excise and customs
duties. Communist Party of India (CPI) General Secretary AB
Bardhan warned that petroleum product price increases would
have a "cascading effect on the prices of other essential
commodities," and cautioned Congress not to allow the

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situation to "spin out of control," or it would have to "face
the peoples' wrath."

Transporters Join In
--------------


4. (U) Although nominally "apolitical" the All-India Motor
Transport Congress (AIMTC) called a 24 hour strike between
June 12-13. AIMTC leaders supported the CPI(M) demands for a
price rollback, kept their vehicles off the roads in key
states, blocked highway traffic, and burnt effigies of
Petroleum Minister Murli Deora, Prime Minister Manmohan Singh
and Congress President Sonia Gandhi. The union promised that
if the GOI did not immediately "rollback" petroleum prices,
it would call for an "indefinite" strike. The AIMTC
leadership derided efforts by Congress-ruled states to cut
their sales taxes on the petroleum increases, saying that
such measures would not begin to offset the rupees 10 USD
0.22 increase per liter in the cost of diesel they have been
forced to absorb since the UPA came to power in 2004. The
union blamed New Delhi for the price increases, pointing out
that "the tax component alone accounts for 54 percent of the
retail price of the fuel," and that diesel is cheaper in
China, Pakistan, Sri Lanka, Bangladesh and Nepal, even though
those countries buy their fuel from the same sources as
India.

The UP Government Sponsors a Strike
--------------


5. (U) In UP, the governing SP (ironically also ostensibly
supporting the UPA at the center) sponsored blockades of rail
and highway traffic and rallies and protest marches
throughout the state. SP protesters stopped key trains for
up to four hours and closed the Allahabad-Varanasi highway
for much of the day. SP General Secretary Amar Singh
ridiculed Sonia Gandhi, asking how PM Singh could countenance
petroleum price increases despite her repeated objections.
He pledged that the SP government in UP would not follow
Congress states and eliminate its sales taxes on petroleum
increases, as it would "have a debilitating effect on
development schemes." Singh praised the CPI(M) for its
"consistent support" of the SP and declared that the
successful strike was the result of close coordination
between Prakash Karat and the UP Chief Minister Mulayam Singh
Yadav. Note: An odd set of ostensibly socialist bed fellows
both of whom give Sonia Gandhi fits. End note.

As Does the New Kerala Government
--------------


6. (U) In Kerala, the newly-elected Left government
sponsored a dawn-to-dusk strike that was almost universally
observed. Congen Chennai confirmed press reports that roads
throughout the state were deserted. The Kerala State Road
Transport Corporation (KSRTC) and taxi and autorickshaw
operators kept their vehicles off the road. Shops and
businesses were closed, most government workers stayed home,
and union workers staged anti-UPA protests in most district
headquarters. Kanam Rajendran, the State Secretary of the
CPI-affiliated All India Trade Union Congress (AITUC)
promised even "stronger agitations" if the
UPA did not cease its "anti-people" policies.

Less Success in Other States

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--------------


7. (U) In Chennai about 1,000 Left demonstrators snarled
traffic on the city's main road for about two hours and
damaged several vehicles. CPI General Secretary D Raja and
state leaders of the LF parties were briefly detained after
picketing government offices. There was a brief LF
demonstration in Bangalore, but police told Congen Chennai
that it "quickly lost steam." Telegu Desam President N
Chandrababbu Naidu took part in a small non-violent
demonstration in Hyderabad that resulted in 100 arrests. The
LF also staged small demonstrations in Punjab, Haryana and
Madhya Pradesh. Ironically, and proving once again that the
Bengali Marxists rarely take the medicine their party
prescribes for others, the CPI(M) government in West Bengal
did not call for a shut-down, preferring to stage symbolic
protest demonstrations in front of public sector oil company
offices in Calcutta.

Congress States Announce Their Own "Rollbacks"
-------------- -


8. (U) One rupee equals about 2.2 US cents. Although the
GOI in 2005 sustained a massive USD 19 billion fuel revenue
shortfall due to rising oil prices, the GOI has modestly
raised the price of gasoline by 4.0 rupees per liter and the
price of diesel by 3.0 rupees per liter to try and shrink the
gap. On June 13, Congress governments in the states of
Delhi, Haryana and Uttaranchal announced that they would not
charge state sales taxes on the modest petroleum price
increases. In Delhi, this token gesture would reduce the
price of petroleum by the devisory sums of rupees 0.67 and
diesel by rupees 0.22. It would reduce tax revenue in the
state by USD 28 million per year. The local truckers
association announced that it was "unimpressed" by the
"rollback" and that it had already increased its
transportation charges by between six and 10 percent to cover
the fuel price hikes, and these increased transportation
charges have already begun to result in increased prices
throughout the economy. The measures in Haryana would reduce
the price of gasoline by rupees 0.67 per liter and diesel by
rupees 0.21 per liter and cost the state government USD 23.8
million. Uttaranchal will reduce the price of gasoline by
rupees 0.75 per liter and diesel by rupees 0.38 per liter.

BJP to Left: Get Off My Turf
--------------


9. (U) BJP leader Venkaiah Naidu maintained on June 13 that
his party would not "allow the Left to occupy the opposition
space," and charged the LF with "duplicity" for supporting
the UPA while opposing its economic policies on the streets.
Naidu announced that the BJP would sponsor its own
"nationwide agitation" against petroleum price increases on
June 19. BJP state leaders will be required to organize and
lead the protests and the entire party leadership will
participate. On June 21, the BJP General secretaries plan to
review the success of the agitation and announce further
actions if the UPA has not "rolled back" the price increases.


Comment: Congress Party Beset From All Sides
--------------


10. (C) Over two-thirds of the Indian population barely

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survives on an income of two dollars a day or less. Although
a large percentage of the population does not directly
consume gasoline r diesel, the markets have anticipated the
cost impact of the price rise in petroleum product inputs for
agricultural goods. Thus, the price rises have already begun
to filter throughout the economy and raised the price of
essential commodities (flour, potatoes, onions, rice,
chilies) that the poor rely on. With no margin of disposable
income, price rises cut deep into the family budget, causing
many families to reduce their already meager diets and face
increased malnutrition. There is increasing unease and anger
throughout society about price rises, with the middle class
also directly affected by the price of fuel that increases
the cost of operating their vehicles. With such a large
percentage of the population living on the economic margin,
any price increases can result in seismic shocks to the
political system. Indian governments have routinely fallen
over price increases in basic dietary staples.
Interestingly, nobody has asked why petrol price controls
even exist, even though they cost the treasury USD 19 billion
last year, which could have gone to health or education.


11. (C) Congress is reeling from other political setbacks,
including the President's rejection of its "offices of
profit" bill and the controversy over its reservation policy,
and there are growing cracks in the wobbly UPA coalition.
Restive regional parties that nominally belong to the UPA are
openly joining the agitations of the LF and BJP, which
specifically target Congress rather than the UPA. The price
increases are a pocketbook issue that allow the Left and
Right to mobilize the common man against the government.
Congress is itself divided. KIey leaders (including Sonia
Gandhi) have opposed the price hikes, criticized the way they
have been handled, or urged Congress to capitulate to the
LF's demands for a "rollback," and the party is finding it
difficult to speak with one voice.


12. (C) Although technically, Congress does not have to face
the voters until the 2009 scheduled Parliamentary elections
and the electoral face-off in UP is not until March 2007,
there is growing fear that a growing wave of defections by
regional parties from the UPA could pose a challenge to its
stability. This is causing Congress increasingly to turn to
the defensive and to act more like a party fighting for
coalition discipline than one solidly in control in New
Delhi.


13. (U) Visit New Delhi's Classified Website:
(http://www.state.sgov.gov/p/sa/newdelhi/)
MULFORD