In the last week of July, the government agreed to allow the public sector oil marketing companies limited freedom to alter the prices of petrol and diesel within a narrow price band. This will insulate consumers to some extent from the global petro-product price hike. This decision was taken at a meeting of the ''cabinet committee on economic affairs''.

Since April 2002, when the prices of petrol and diesel were decontrolled, the oil marketing companies have adjusted prices of petrol and diesel 24 times. Of this, retail prices have been raised 16 times and decreased eight times. Therefore, it was imperative for the government to limit the increase in the rate of petrol and diesel prices.

The Indian Oil Corporation (IOC), Bharat Petroleum Corporation Limited (BPCL), IBP and Hindustan Petroleum Corporation Limited (HPCL) have now limited freedom to lower and raise the prices of petrol by up to 10 per cent of a pre-defined mean market price (i.e. The mean of the price of petrol or diesel, averaged over a period of three months, and the last one year''s rolling average price ) every fortnight.

Unfortunately, the demand of the petrochemical companies regarding the removal of the subsidies on kerosene and diesel fell on deaf ears this time. The government has declared that, as far as these subsidies go, their catering to the subsidies is their social responsibility.

The government has informed the petro-companies that though they were unhappy with the Re1 hike, this hike was insufficient to cope with the increase in international rate of crude.

In fact, it is to enable companies to cope with just such increases in prices that the government is allowing them this limited degree of freedom. Most probably, the limit has been put so as to allow the consumer the requisite time to adjust to the change and also to set a baseline and limit for the increment in the rates.

This price band limitation can be a boon as well as a bane. This is because If the prices of petrol rise steeply, then the oil marketing companies will be forced to sell at a price lower than the international price. But if the price of petrol falls steeply then the companies stand to gain because they can charge rates higher than the international prices.

Other issues that were discussed in the meeting included the issue that, in trying to cope with the subsidies on LPG and diesel the Oil and Natural Gas Commission was bearing heavy losses. Regarding this the committee has yet to decide which path to follow. Three solutions to this problem were outlined of which the first was that the oil companies could bear the burden, the second was that the burden would be passed to the consumer in full and the last option was that the Finance Ministry be approached for relief.

What does come across clearly is the fact that this has the ability to be a boon and a bane for the consumer and the retailer alike.