* Raises rail passenger fares for first time in nine years
* Oil min proposes staggered increase in diesel prices
* Suggests steep hike in cooking gas prices
* Move seen to help rein in fiscal deficit
(Recasts with comments from oil ministry)
By Rajesh Kumar Singh and Nidhi Verma
NEW DELHI, Jan 9 (Reuters) - The Indian government moved on
Wednesday to mend its strained finances, which have hit capital
investment and put its sovereign credit ratings in peril.
Prime Minister Manmohan Singh's government hiked railway
passenger fares after a gap of nine years and later in the day
sources in his government said it had proposed an increase in
heavily subsidised fuel prices to rein in a swollen fiscal
The move signals Singh's intent to push ahead with
politically unpalatable but vital reforms to revive an economy
that is on track to post its worst growth rate in a decade.
The economic slump is also making it tougher for Prime
Minister Singh to fund flagship welfare programmes ahead of a
national election due by mid-2014.
Railways Minister Pawan Kumar Bansal said the passenger fare
increase will help generate 66 billion rupees ($1.2 billion) for
the cash-strapped rail system, whose creaky service has become a
drag on the economy.
The government tried to raise the fares, unchanged since
2004, in March 2011 but protests from a key ally forced Singh to
abandon the plan and drop his railways minister.
The refusal by successive ministers to raise passenger rail
fares has strained the finances of the railways, sapping its
capacity to lay new track, modernise services and improve
A sleeper ticket from New Delhi to Mumbai, about 1,390 km
(864 miles) away, can cost as little as about 400 rupees
Bansal said the fare hike, which will be effective from Jan.
21, was necessary. "Facilities and safety measures will improve
with an increase in fares."
DIESEL PRICE HIKE
India's economic growth that once promised to hit
double-digits is languishing below 6 percent for the past three
quarters. One of Prime Minister Singh's key policy advisers,
Montek Singh Ahluwalia last month said economic growth could get
stuck at 5.0-5.5 percent if a policy logjam continues.
Singh has been pitching for a phased adjustment in domestic
energy prices since last month to align them with global
markets, warning that business-as-usual policies won't deliver
India's policy to subsidise retail prices of fuels such as
diesel, which account for about 40 percent of refined fuel
consumption, to benefit the poor is a major drain on the
These populist policies have swollen India's fiscal deficit,
which funding through a heavy market borrowing has driven up
borrowing costs for private investors and dimmed economic growth
Officials at the oil ministry said in Wednesday that the
ministry has moved a proposal to the federal cabinet to increase
diesel prices a rupee a litre every month. It has also suggested
increasing the cap on subsidised cooking gas cylinders to nine
from six and hiking prices by 100-110 rupees a cylinder.
The fuel prices were last raised in September when a
beleaguered government, under pressure from the credit rating
agencies, launch some of its most daring initiatives that also
included opening the retail and other sectors to foreign
"There is also a possibility that the government may decide
to raise diesel prices by 4-5 rupees a litre instead of going in
for a phased increase," one of the oil ministry officials said.
"With general elections due in 2014, raising prices will be
difficult in the second half of this year."
Ratings agencies Standard & Poor's and Fitch have warned
that a widening fiscal deficit has put India on the brink of
losing the investment grade status enjoyed by fellow "BRICS"
Brazil, Russia, China and South Africa.
"It's positive news, as rise in fuel prices will help
curtail subsidy bill, and hence the fiscal deficit," said Vivek
Rajpal, fixed income strategist at Nomura in Mumbai.
New Delhi aims to trim the fiscal deficit to 5.3 percent of
gross domestic product in the fiscal year that ends in March
after overshooting the official target of 4.6 percent last year
by 1.2 percentage points. But given the revenue and expenditure
mismatch, many economists dub the target as optimistic.
($1 = 55 rupees)
(Reporting by Rajesh Kumar Singh; Editing by Tony Munroe nd