India faces inflation dilemma as fuel costs rise

India is being squeezed by rising fuel prices, the International Monetary Fund (IMF) has said, as the country’s inflation figure nears double-digits.

The IMF says India faces a choice between diverting government money to subsidise fuel prices or letting inflation continue to rise. India is a heavy importer of fuel and is particularly vulnerable to the rise in oil prices.

Sanjaya Panth, a representative for the IMF’s Asia and Pacific department in India, praised the nation’s efforts to free fuel prices by cutting subsidies. He says the government is diverting the savings to more productive areas such as infrastructure investment. However, he warns that lower subsidies will boost inflation and that interest rates will have to rise. (article continues below)

Brent Crude hit $99 a barrel last week, sparking fresh fears of $100 oil.