Price setting in a market economy is a dynamic process that cannot be bound by strict and well-set timelines. The prices of key commodities, after all, change every day, even every hour and every minute. Of course, when the government does the price setting, things aren?t anywhere as dynamic. That was the case with the pricing of petrol, for example, until the recent decontrol. The question that is now being asked is how often will petrol prices be revised. The answer to that should be, as often as is necessary, depending on the level of global crude oil prices, which usually change, even if not dramatically, on a daily basis. So, in theory, there is no reason why petrol prices should not be considered for revision quite regularly, on a weekly basis, if necessary. As reported by FE, the three main oil marketing companies are converging on reviewing fuel prices at the end of every month, in accordance with the global level of prices. As such, there is little wrong with this move. Perhaps only, even greater flexibility should be allowed, given that the price of crude goes up or goes down sharply in the first week of a month and a compulsory wait till the end of the month makes little sense.
In the context of price setting, RBI is reportedly considering increasing the frequency of its meetings to review monetary policy?essentially to set a price on credit?to once every month, instead of on a quarterly basis as is the case now. Interestingly, RBI has, over the last two years, chosen to alter interest rates on a fairly regular basis outside the period of its scheduled review. Again, this makes good sense, because events, both domestically and internationally, unfold at a rapid clip and the central bank is required to respond flexibly, and not at a preassigned time. Institutionalising a monthly or a once in six weeks review process, as is the practice in many advanced economies, is, therefore, a step in the right direction. That will help remove the uncertainty that surrounds the somewhat ad hoc process that the setting of interest rates has become in recent times. A mature market economy must, after all, be at its most flexible and nimble when it comes to the adjustment of key prices.
