As many as five million Indian lorry drivers went on strike today to protest against a surge in fuel prices, dealing what may prove a fatal blow to the country's beleaguered Government.

Congress, the biggest party in the governing coalition, already faces the prospect of snap elections after it signalled its intention to pursue a controversial nuclear power deal with the United States. Congress's leftist coalition partners have pledged to withdraw their support should Manmohan Singh, the Prime Minister, forge ahead with the agreement, a move that could take the world's largest democracy to the polls.

The unprecedented deal would give India, which already has nuclear weapons, access to civilian nuclear technology without it having to commit to the Non-Proliferation Treaty. However, groups such as the Communist Party of India (Marxist) say that the pact — which would pave the way for contracts estimated at as much as $100 billion (£50 billion) for Western companies — would align India too closely with the US.

Mr Singh appears determined to chase the deal despite the widely held belief that the Bush Administration has effectively run out of time to enact it and that America's next president with withdraw the offer. Congress officials were today locked in last ditch talks to gain support from the Samajwadi Party, a regional group with strong Muslim support that could offset the loss of the leading party's current allies and avert an early general election.

Analysts agree that Mr Singh could hardy choose a worse time to go to the people. The lorry drivers'strike, which will last for an indefinite period, threatened to cripple the subcontinent's transport network just as India's recent economic renaissance fades amid rocketing inflation levels. The often chronically overloaded vehicles that ply the country's potholed highways carry as much as three quarter's of India's freight.

Congress already faces a chorus of discontent from the rural poor — India's most important electoral constituency — and the country's newly prosperous urban middle class, both of which are being hard hit by sharp fuel and food price rises.

Last month, the government admitted defeat in its battle to shield the public from record-high oil markets when it raised subsidised petrol and cooking gas prices by about 10 per cent. The move, which was criticised bitterly by the All India Motor Transport Congress, the body behind the drivers' strike, is expected to buoy inflation levels that are already running at 13-year highs.

India's economic situation worsened this week when it emerged that the country's current account deficit nearly doubled last year, on the back of record high global oil prices. The county's fragile finances will be further in coming months by a multibillion-pound loan waver scheme being offered to small farmers and large pay increases for India's army of civil servants.

There are also suggestions that overseas investors' appetite for Indian equities has diminished sharply. Foreign institutional investors, who account for the lion's share of activity in the Indian stock markets, have made net sales of shares of nearly $6.5 billion in the first six months of 2008, according to data from Bloomberg, the largest sell-off since the market was opened up to them in 1993.

The rupee has fallen more than 8 per cent against the dollar this year, partly on concerns over the widening deficit. The central bank lifted its key lending rate by half a percentage point last week in an effort to reign in price rises, a move that will increase the cost of borrowing for consumers.

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