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6 hours ago
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ARTICLE AD BOX
Summary
On the face of it, a cross-subsidy policy for liquefied petroleum gas makes sense. What works on paper, however, need not work on the ground. All it takes is a single design flaw for a policy of differential pricing to fail.
Split pricing has its benefits. If something is sold to price-insensitive customers at a steep mark-up, then overall utility can be maximized if the extra charge allows price reduction for others.
This idea works best when consumption is easily divided. Aviation turbine fuel goes right into aircraft, for example, while its far cheaper (and less refined) version kerosene is often sold loose.
Liquefied petroleum gas (LPG), however, is hard to apportion neatly. By policy, India keeps its supply for household kitchens cheap, but its sale as a commercial fuel expensive. On Friday, state-run oil companies hiked the latter’s price by almost 50% to make up for a surge in the import cost of hydrocarbons from which LPG is derived.
On the face of it, this cross-subsidy makes sense. The trouble is that cheap LPG is available only to a registered base of identified users. This leaves millions of poor homes with scrappy documents reliant on a grey market that’s supplied by pricey commercial LPG; they suffer the unintended consequences of progressive pricing.
Direct subsidy transfers have been a notable reform, but these apparently await full coverage of the needy. For fairer pricing, data gaps need to be plugged.
English (US) ·