India has moved to ease price controls on gasoline and raise other fuel rates. Here are some questions and answers about the implications.

What will be the political impact?
Opposition political parties will organize national strikes against and try to block legislation in the next parliament session by seeking support from ruling Congress Party coalition allies.

Congress could be hit in major state elections, including West Bengal and Tamil Nadu, in early 2011. But the hikes come months before these votes and voter backlash can be mitigated by using savings fuel price deregulation to boost social spending.

There is also an escape clause. The government has already said it would intervene if crude prices rise sharply. What sharply means is unclear and it could be used politically to justify an new increase in subsidies.

What will be the impact on India's retail oil market?
State firms such as Indian Oil, Bharat Petroleum and Hindustan, which control more than 95% of about 40,000 refined fuel pumps operating in India, are likely to lose market share.

Reliance Industries, which operates the world's biggest refining complex at Jamnagar, is expected revive all its pumps, which were shut down five years ago when the government started subsidizing fuel sold by state firms. Essar Oil is also expanding its retail network.

How soon would private firms expand retail networks?
So far, the government has only freed gasoline prices, which accounts for about 10% of the oil products sold in India. Diesel, used by trucks, buses and a growing number of cars, accounts for more than a third of the oil consumed in India, and is the more lucrative. Private firms will speed up retail expansion after the government removes price controls on diesel.

Essar has said it plans to increase its retail network to 1,700 by end-March from the current 1,342.

What is the extent of the price rise?
Domestic fuels are taxed differently by the Indian states. If New Delhi prices which are used as a reference, gasoline prices were raised by 7.3%, diesel by 5.2%, kerosene by 32.5% and LPG by 11.3%.

How would gasoline prices be set in India?
Companies will fix their own prices of gasoline. This could see more competition in the retail sector and eventually push down prices.

How would it impact exports of oil products?
Exports may fall. As Reliance increases domestic sales, it may reduce exports as its 660,000 bpd plant to sell to the domestic market, which is usually more lucrative.

How does it impact the finances of oil firms?
State firms will gain from market rates of gasoline and higher prices of diesel. Before last week's price rise, state-run retailers were expecting a revenue loss of $24.4 billion this year, based on an average crude price of $85 a barrel.

Will issuances affect the bond markets?
No. Oil companies issue bonds to borrow money from the corporate bond market to largely finance the shortfall in working capital on selling fuel below cost.

However, dealers have said that bond issuances by oil companies will now come down because they will have more cash in their books after the move to hike prices of domestic fuels.

Oil companies are marginal players in the corporate bond market, accounting for $1.1 billion in a $22 billion market.

Will inflation stay at elevated levels?
Yes. That is very likely. The finance ministry's chief economic adviser, Kaushik Basu said that the price rises would impact headline inflation by 0.9% points.

Analysts have also estimated that the hike may lead to an increase in headline inflation by more than 100 basis points with a lag of a few weeks.

But forecasts from the Indian Meteorological Department suggest that monsoons this year are expected to be normal, which should bring down both food and headline inflation.

How does it impact rate expectations in the markets?
The price move will likely aggravate already existing double-digit inflationary pressures. Markets have already priced in a 25 basis points hike in key rates in the July 27 policy review.

However, because of increasing inflationary pressures, the possibility of stronger policy hike by the RBI have increased with some traders expecting an inter-meeting rate hike of 25 basis points and another 25 basis points in the policy review.

Some traders see the central bank as hiking rates by 50 basis points in the policy.

Current tight liquidity conditions in the market are also one reason which traders feel could be holding the central bank back from hiking policy rates before July. 27.

To what extent will the fiscal deficit come down?
The finance secretary says the fiscal deficit in the year ending March 2011 can be slashed to 4.5%. Efforts to reign in the deficit have been buoyed by better-than-expected revenues of about $24 billion from the auction
of third generation telecom and broadband wireless spectrums.