India must hike fuel prices to offset spiralling oil import bills, Premier Manmohan Singh said Saturday, after refiners threatened to raise petrol prices to curb growing losses.
"We need to rationalise prices and at the same time ensure that the poor and needy are shielded from the effects of such a rationalisation," Singh said in a speech at the opening of a refinery in the northern state of Punjab.
"With imports accounting for 80 percent of our crude supplies, the spiralling prices of crude in the international market have put a severe strain on our import bill," he added, without offering details on the hike.
In the speech, posted on his website, he said India needs to conserve energy and there is "no room for inefficient and wasteful usage of fuel" in the country, where blackouts are frequent.
India's Congress-led government in June 2010 deregulated petrol prices in a reform aimed at reducing the massive subsidies it pays to state-run fuel refiners which rely on imported energy.
Refiners have not raised petrol prices since December 2011 but say they must unless the cash-strapped government offsets their costs. A sharp fall in the value of the rupee against the dollar has exacerbated the companies' losses.
When the government freed up prices for petrol, seen as a fuel mainly used by middle-class Indians, it kept control of cooking gas and kerosene prices to protect the poor -- Congress's key supporters -- against price shocks.
It also kept diesel fuel at below-market prices.
Singh's warning that fuel prices need to rise comes as the government battles stubborn inflation, running at nearly seven percent, and a slew of corruption scandals that have badly undermined its popularity.
The high cost of imported fuel is partly blamed for the ballooning of India's current account deficit -- the gap between exports and goods and services imports -- to its widest level in eight years.
Earlier in the week, Standard and Poor's cut India's credit rating outlook to negative from stable, citing the country's high deficits as partly to blame, and warned of a one-in-three chance it would lose its investment grade status.