After protests against the increase shut down the capital and other towns for a second day, a cabinet meeting on Sunday evening decided to withdraw the hefty increases in the prices of petroleum products announced on Friday.
Supplies Minister Hridesh Tripathi said the decision was also taken to set up a three-member committee led by former chief secretary Bhanu Acharya to look into alternatives to the price increase and present a report within one month.
But economists said the committee would find it difficult to come up with anything other than a price increase because of Nepal Oil Corporation\'s Rs 9 billion debt to Indian Oil as well as the increases in world crude prices.
"The decision to increase the prices without proper homework was wrong and the decision to completely withdraw the increase was also wrong," said the economist who works for the Rastra Bank, "the cabinet should have reduced the price hike by a few rupees."
The government appears to have been spooked by the spreading unrest and the fear that Maoist-affiliated unions would take advantage of the public disenchantment. But it is trapped between the devil and the deep blue sea because if NOC doesn\'t clear the money it owes Indian refineries, oil and gas supplies could actually be stopped.