ON BOARD AIR INDIA ONE: Finance minister Pranab Mukherjee may have indicated on Sunday that he was open to discussing the issue of a hike in duty on automobile fuels with allies protesting against the move. But that should not necessarily mean a rollback of the price increase, with Prime Minister Manmohan Singh questioning the case for slashing the prices of petro products to pre-Budget levels.

Talking to journalists on his way home from Saudi Arabia, Singh said that persisting with populist policies would hurt the country in the long term, while disputing the argument that the hike in petrol prices would have a cascading effect.

"Any increase in prices does hurt some people. We have to take a long-term view. We cannot save people from inflation if we follow populist fiscal policies all along. Sooner or later, these populist policies, if persisted with for a long time, will lead to erosion of the investment climate, our capacity to create new jobs, and of our ability to invest in our flagship programmes for the poor people. So, we have to balance these factors,"
Singh said while replying to questions from the media.

Coming in the wake of protests from Congress allies Mamata Banerjee and the DMK against the hike, Singh's response indicates that the government is not going to give in easily to pressure from its allies.

It also confirms that the hike had been thought through, having been influenced by the considerations of inevitability as well as given that no big election, except in Bihar, is scheduled this year, timing.

Also, he did not agree that hike would add to the already-high inflation. "The increase in the fuel prices, the direct effect on the wholesale price index will be no more than 0.4%. There will be some escalation but my hope is now that the rabi crop is coming into the market, prices which have caused a great degree of concern—of wheat, sugar, oilseeds, pulses—will see some moderation and that the economy has the capacity to absorb this hike in oil prices without setting in motion an inflationary spiral."

Singh's response tests the resolve of Mamata Banerjee as well as the DMK to escalate matters if their views are not heeded. Although she has relentlessly tried to get the government to tailor its policies to use her political objectives in West Bengal, the Congress leadership has calculated that she is going to edge away from a confrontation in the final analysis. But with Banerjee raising stakes for herself by publicising her insistence for a rollback, she may be constrained to dig in her heels for a face-saver in the form of a partial rollback.