Price band — bane or boon?

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.