If the honest answer is that the government is going to stick by market rates, no matter what, at least in the range of prices we have seen in the last six months, namely, high $30s to high $140s, then such a move is to be lauded. This will go a long way in educating the citizenry at large and policy-makers in particular that we have entered a new era of energy prices — one of high-amplitude volatility. They will incorporate that into their decision-making frameworks and they will make themselves and thereby through the invisible hand, our economy, less vulnerable to fluctuations in energy prices. This will lead to a more robust economy.  

However, if at the back of their minds, the government know that there is no way in heaven that they can continue with market-determined retail prices of petrol, diesel, kerosene and LPG should crude oil for whatever reason touch $147, they are treading on thin ice. Credibility of the government, which isn’t very high in any case, will be further lost. Markets are unforgiving: they don’t care for the elation or suffering of constituents. They don’t have emotion, are impartial and indifferent in the delivery of pain. The vulnerable will suffer more because they have less manoeuvrability. 

Thus interference with markets, if present, needs to be symmetric and not asymmetric. Moving to market rates of petrol when prices are low and abandoning the market when prices are high scorns the market; and a scorned market is vicious and dangerous, as the housing bust and global economic crisis it caused in its aftermath will testify. Similar asymmetric intervention after the post dot-com bust made Greenspan spawn a below-market-rate-of-interest in the US in particular and the world in general. That single step left a trail of exuberantly priced realty, which came crashing back to realistic levels when the markets reached their limit of tolerance of the increasing inconsistencies. Falling realty prices led to failing bonds and ignited the current crisis.  

... contd.