Executives of three top companies that, together, hold monopoly control over the market meet with a government official and then emerge to announce they will set a common price. Is that price fixing or what?

I am referring to the meeting this morning of executives from India’s leading public sector oil companies – Indian Oil, Hindustan Petroleum and Bharat Petroleum – with Petroleum Secretary S. Sundareshan.

"All the three oil marketing companies will have a uniform price," IOC’s Director (Finance) S.V. Narasimhan told reporters without batting an eyelid.

In most capitalist countries, the executives would be thrown into jail for price fixing. It should be no different in India. It is not enough to just “decontrol” petrol prices – effectively saying the companies can set their own price, instead of selling at government-mandated prices – but then allow PSUs to collude, rather than compete.

The only reason why the government-owned companies may not want to compete against each other is their larger intent to shut out, and bankrupt, private sector players such as Reliance and Essar who plan to return to oil retailing. You must remember that the reason Reliance shut down was its inability to compete on price against government-determined subsidized prices. Remember also that Reliance yesterday accused the oil PSUs of cartelization but this allegation was restricted to ATF, or aviation turbine fuel.

Conceivably, the three companies with a nod and a wink from the government can now set the price of petrol in such a way as to shut out private competitors. Already, Narasimhan confessed that the companies had not raised petrol price to cover costs. They raised petrol price by only Rs. 3.50 per liter, whereas they needed to raise it by at least Rs. 3.73 per liter to cover costs. It is not hard to understand why the companies chose to incur losses over immediate profits.

We might have to wait and watch, as the companies set petrol prices each month, before we conclusively identify their tactic. But it is already clear that the government, despite freeing up petrol prices, might not want to uphold the spirit of the free market.