(Adds comment from transport ministry, details)

MUMBAI, July 2 (Reuters) - Millions of Indian truckers went on strike on Wednesday to protest against high taxes and rising fuel bills, union leaders said, adding that a meeting with the transport ministry had failed to resolve the dispute.

Trucks provide the transport lifeline of India’s economy and a lengthy strike would threaten not only goods supplies but also industrial output. Diesel sales could drop sharply.

“About 4.5 million trucks are off the road as part of our indefinite strike. Transportation of all goods, including essential items, has been stopped,” said S.K. Sharma, an adviser to the All India Motor Transport Congress.

“We have to wait and watch for the government’s response.”

T.R. Baalu, India’s transport minister, released a statement asking the transporter associations to end their strike, saying the ministry was trying to sort out their problems.

In the southern city of Chennai, about 1,000 protesters waved placards in a noisy rally, while vegetable vendors said people had already began panic buying potatoes and other groceries.

Any prolonged action will add to the woes of India’s coalition government, which is already battling inflation soaring at a 13-year high. Also, its communist allies are threatening to withdraw support over a nuclear deal with the United States, raising the prospect of a snap election.

Charan Singh Lohara, president of the truckers’ congress, which represents both large and small operations, and other representatives met transport ministry officials on Wednesday.

The ministry said in its statement that it had explained in the meeting the reasoning behind some of the rate hikes, and was trying to solve some of the other problems raised.

Lohara said he was unhappy with the minister’s response, and that the strike would continue “until the government solves our problems.”

A similar week-long strike in August 2004 pulled monthly diesel sales down 9.3 percent from a year earlier and hurt annual growth in industrial output because of disrupted shipments.

Lohara said earlier most of the 4 million trucks he expected to stay off the roads were long-distance cargo carriers, consuming between 75 and 80 litres of diesel a day.

He told Reuters on Tuesday that fuel retailers had been forcing commercial vehicles to meet half of their fuel consumption through costlier branded diesel for the last ten days.

A senior official at leading retailer Indian Oil Corp said the cheaper diesel was still available at highway outlets but customers were being “encouraged” to buy branded fuel in cities.

The transport ministry said in its statement that it was looking into the issue of “forced selling” of branded fuel with the petroleum ministry.

India caps the prices of normal petrol and diesel sold through fuel stations but no such price control exists for branded fuels, which are still much cheaper than if prices were market-determined.

The Indian government, which heavily subsidises fuel prices to protect the poor, raised the retail price of petrol and diesel by about 10 percent this month to partly pass on the soaring cost of crude oil.

But many of the country’s states cut local taxes to soften the impact on consumers. (Reporting by Jonathan Allen in Mumbai, Nidhi Verma in New Delhi and S. Murari in Chennai; Editing by Alistair Scrutton and Alex Richardson)