Indian PM defends higher fuel prices and new foreign investment rules

Indian Prime Minister Manmohan Singh yesterday defended a string of economic reforms unveiled by his government, despite protests over higher fuel prices and new foreign investment rules.

Singh, speaking to ministers and advisers in New Delhi, said the reforms were needed to revive flagging economic growth, improve the investment climate and boost public finances.

"The recent increase in diesel prices is an important step in the right direction," he said, following a decision on Thursday to raise the heavily subsidised price of diesel by 12 per cent.

Truckers' unions have since threatened to go on strike and there were protests on Friday over the halving of the number of subsidised cooking gas cylinders available to households per year.

On Friday the cabinet also cleared contentious new rules inviting foreign supermarkets into the Indian retail sector and allowing foreign airlines to take stakes in domestic carriers.

"To achieve the target of 8.2 per cent growth [contained in a new five-year economic plan], we need to revive investment in the economy. The investment environment is therefore critical," Singh said.

The prime minister warned a worst-case scenario of a "policy logjam" could prompt economic growth to plummet.

"It reflects a situation where, for one reason or another, most of the policies needed to achieve are not taken," Singh told his policy planners.

The Trinamool Congress, a regional partner in Singh's multi-party coalition, mustered several thousand supporters yesterday to press its demand for a rollback of the changes.

Police said despite a heavy downpour, around 10,000 Trinamool activists, including children, gathered in the heart of state capital Calcutta in a show of defiance against the government's decisions.

Trinamool leader and West Bengal chief minister Mamata Banerjee warned party leaders would meet on Tuesday to decide their "next course of action".