June 5 (Bloomberg) -- Asian governments are falling behind in their battle against record oil prices, risking public protests, higher interest rates and slower growth.

Indian Prime Minister Manmohan Singh and his Malaysian counterpart, Abdullah Ahmad Badawi, relaxed fuel price controls yesterday, joining Indonesia, Taiwan, Pakistan and Sri Lanka in boosting costs for business and consumers. The moves will drive India's inflation to 8.5 percent, a 13-year high, said Lehman Brothers Holdings. Malaysia's consumer-price growth may double to more than 7 percent this month, said Goldman Sachs Group.

Central banks in the region may also follow Pakistan in raising rates, as policy makers lose bets that a global slowdown would temper price increases. Higher gasoline, diesel and cooking-gas charges are ``inevitable'' as India can't afford to shield its 1.2 billion people forever, Singh said in a televised address. His allies, India's four communist parties, have scheduled a week of protests starting today.

``This is going to cost these governments politically,'' Michael Spencer, Hong Kong-based chief economist for Asia at Deutsche Bank AG, said in an interview with Bloomberg Television. ``The governments are basically saying they can't keep subsidizing fuel.''

Abdullah and Singh are risking a political backlash after losing ground in elections in the past year. Abdullah's coalition lost its two-thirds majority in parliament and ceded control of five states in general elections March 8.

Topple Government

Opposition leader Anwar Ibrahim, freed from prison in 2004, said May 29 he'll ``immediately'' contest a parliamentary seat once he confirms his eligibility, in a bid to topple the government by mid-September.

Singh's Indian National Congress party has had nine electoral setbacks in 11 provincial polls since January 2007. The prime minister's parliamentary majority hinges on support from the communists, who pledged to block rail and road routes during the demonstrations.

Streets in India's eastern state of West Bengal were deserted today after the communists, who rule the province, ordered shops, schools and government offices to close, the Press Trust of India said. Train and air travel to the city of Kolkata were also affected, the report said.

The main opposition Bharatiya Janata Party says Singh's government has run out of ideas to tackle the oil crisis.

If an increase in fuel prices ``is inevitable, then the exit of the prime minister and his government is inevitable as well,'' party spokesman Rajiv Pratap Rudy said.

Force Out

There is a precedent for higher prices to force out governments in Asia. Indonesia's attempt to increase fuel costs in 1998 sparked protests that led to the ouster of President Suharto after almost 32 years in power.

India, which imports 70 percent of its oil, increased prices for gasoline by 11 percent, diesel by 9 percent and cooking gas by 17 percent after oil reached a record $135.09 a barrel in New York on May 22. India previously raised fuel prices in February, the first time since June 2006. Cooking-gas prices had been capped since April 2005.

India also cut customs duties on gasoline and diesel by two thirds to 2.5 percent and scrapped a 5 percent import tax on crude oil to reduce revenue losses at government-run refiners that have reached an unprecedented $1 billion a week, constraining their ability to import oil.

Monthly Adjustments

In Malaysia, the price of 97-RON grade gasoline will now be adjusted monthly to track global prices. Tenaga Nasional Bhd., the government-controlled power producer, will be allowed to raise electricity prices in peninsular Malaysia starting July, as it will have to pay higher prices for gas, Abdullah said.

``Because crude-oil prices and commodities at the international market have gone up drastically, the government needed to restructure the subsidy system,'' he said.

Premium gasoline price in India's capital New Delhi is 207 rupees ($4.81) per gallon, compared with $3.13 in Malaysia, $4.16 in U.S., $8.75 in France and $9.89 in Netherlands.

Malaysia and India are using the same tactic as some of their neighbors. Indonesia raised fuel prices by an average 29 percent on May 24, the first increase in three years, to cut subsidy costs. Ceylon Petroleum Corp., Sri Lanka's government oil company, increased fuel prices for the second time this year on May 25 to trim losses. Lanka IOC Ltd., the Sri Lankan unit of India's biggest refiner, Indian Oil, boosted diesel prices three times and gasoline once this year.

`Totally Unacceptable'

Reserve Bank of India Governor Yaga Venugopal Reddy has called inflation ``totally unacceptable,'' as it gives little room to spur an economy that's growing at the slowest pace since 2005.

The bank has held interest rates at 7.75 percent, near a six-year high, since March 2007. It has relied on telling banks to set aside more cash against deposits to tackle inflation; it increased the cash ratio twice in the past two months to the highest level in seven years.

Malaysia has also avoided raising interest rates, relying on price controls and subsidies until now to keep inflation contained. Its central bank has kept borrowing costs unchanged at 3.5 percent since April 2006.

Malaysia's inflation rate may jump to a nine-year high this month after the fuel-price rise, central bank Governor Zeti Akhtar Aziz said. Inflation may average 4.2 percent this year, up from a March forecast of 2.5 percent to 3 percent, she said.

``Prices will adjust and it will peak sometime in the early part of next year,'' Zeti told reporters in Kuala Lumpur. ``During this period, there have to be adjustments to these price increases.''

To contact the reporter on this story: Cherian Thomas in New Delhi at cthomas1@bloomberg.net

Last Updated: June 5, 2008 02:20 EDT