IDEAS home Printed from https://ideas.repec.org/a/eee/enepol/v100y2017icp181-190.html
   My bibliography  Save this article

Cross subsidy removal in electricity pricing in India

Author

Listed:
  • Bhattacharyya, Ranajoy
  • Ganguly, Amrita

Abstract

In India electricity price for agriculture is cross subsidized by the industries. The Indian government has started a process through which the extent of cross subsidization is gradually being reduced. The idea is to replace the cross subsidization by 2030 and introduce a rate structure that will increase with the amount of electricity usage. This paper uses the Computable General Equilibrium framework to evaluate the ex-ante impact of these policy changes on the Indian economy. The paper finds that removal of cross subsidies will increase inflation particularly food inflation resulting in a decline in household incomes more so in rural areas. Replacing cross subsidies with a progressive rate structure will compensate for only a small part of the negative effects of the removal of cross subsidies. Four other policy options are also investigated targeting household incomes, food inflation and general inflation. Most of these options do not work as the required increase in budget deficit is unlikely to be bearable to the government. The only feasible option appears to be a direct price subsidy to agricultural sector: in this case food prices are held down, inflation is moderate and effect on household incomes is minimal.

Suggested Citation

  • Bhattacharyya, Ranajoy & Ganguly, Amrita, 2017. "Cross subsidy removal in electricity pricing in India," Energy Policy, Elsevier, vol. 100(C), pages 181-190.
    • Handle: RePEc:eee:enepol:v:100:y:2017:i:c:p:181-190
    DOI: 10.1016/j.enpol.2016.10.024
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0301421516305699
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.enpol.2016.10.024?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Coupal, Roger H. & Holland, David W., 2002. "Economic Impact Of Electric Power Industry Deregulation On The State Of Washington: A General Equilibrium Analysis," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 27(1), pages 1-17, July.
    2. Breisinger, Clemens & Engelke, Wilfried & Ecker, Olivier, 2011. "Petroleum subsidies in Yemen : leveraging reform for development," Policy Research Working Paper Series 5577, The World Bank.
    3. Dartanto, Teguh, 2013. "Reducing fuel subsidies and the implication on fiscal balance and poverty in Indonesia: A simulation analysis," Energy Policy, Elsevier, vol. 58(C), pages 117-134.
    4. Edgar F.A. Cooke & Sarah Hague & Luca Tiberti & John Cockburn & Abdel-Rahmen El Lahga, 2016. "Estimating the impact on poverty of Ghana’s fuel subsidy reform and a mitigating response," Journal of Development Effectiveness, Taylor & Francis Journals, vol. 8(1), pages 105-128, March.
    5. Sands, Ron & Westcott, Paul & Price, J. Michael & Beckman, Jayson & Leibtag, Ephraim & Lucier, Gary & McBride, William D. & McGranahan, David & Morehart, Mitch & Roeger, Edward & Schaible, Glenn & Woj, 2011. "Impacts of Higher Energy Prices on Agriculture and Rural Economies," Economic Research Report 262236, United States Department of Agriculture, Economic Research Service.
    6. Dixit, Avinash K & Stiglitz, Joseph E, 1977. "Monopolistic Competition and Optimum Product Diversity," American Economic Review, American Economic Association, vol. 67(3), pages 297-308, June.
    7. McDonald, Scott & van Schoor, Melt, 2005. "A Computable General Equilibrium (CGE) Analysis of the Impact of an Oil Price Increase in South Africa," Working Paper Series 15633, PROVIDE Project.
    8. Ying Fan & Jian-Ling Jiao & Qiao-Mei Liang & Zhi-Yong Han & Yi-Ming Wei, 2007. "The impact of rising international crude oil price on China's economy: an empirical analysis with CGE model," International Journal of Global Energy Issues, Inderscience Enterprises Ltd, vol. 27(4), pages 404-424.
    9. Alvarez, Jorge & Valencia, Fabian, 2016. "Made in Mexico: Energy reform and manufacturing growth," Energy Economics, Elsevier, vol. 55(C), pages 253-265.
    10. Krugman, Paul R., 1979. "Increasing returns, monopolistic competition, and international trade," Journal of International Economics, Elsevier, vol. 9(4), pages 469-479, November.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Paolo Epifani & Gino Gancia, 2008. "The Skill Bias of World Trade," Economic Journal, Royal Economic Society, vol. 118(530), pages 927-960, July.
    2. Peter Egger & Douglas Nelson, 2011. "How Bad Is Antidumping? Evidence from Panel Data," The Review of Economics and Statistics, MIT Press, vol. 93(4), pages 1374-1390, November.
    3. Andrew B. Bernard & Jonathan Eaton & J. Bradford Jensen & Samuel Kortum, 2003. "Plants and Productivity in International Trade," American Economic Review, American Economic Association, vol. 93(4), pages 1268-1290, September.
    4. Baldwin, Richard, 1993. "A Domino Theory of Regionalism," CEPR Discussion Papers 857, C.E.P.R. Discussion Papers.
    5. Barbier Edward B & Rauscher Michael, 2007. "Trade and Development in a Labor Surplus Economy," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 7(1), pages 1-36, August.
    6. Igor A. Bykadorov & Alexey A. Gorn & Sergey G. Kokovin & Evgeny V. Zhelobodko, 2014. "Losses From Trade In Krugman’s Model: Almost Impossible," HSE Working papers WP BRP 61/EC/2014, National Research University Higher School of Economics.
    7. Shon M. Ferguson, 2015. "Endogenous Product Differentiation, Market Size and Prices," Review of International Economics, Wiley Blackwell, vol. 23(1), pages 45-61, February.
    8. Rüya Eser & Hale Kırer Silva Lecuna, 2017. "Mekansal İktisat ve Mekansal Kompleksite Üzerine Bir Değerlendirme," Yildiz Social Science Review, Yildiz Technical University, vol. 3(2), pages 137-153.
    9. Christian Broda & David E. Weinstein, 2006. "Globalization and the Gains From Variety," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 121(2), pages 541-585.
    10. Dariusz Kotlewski, 2022. "Przesłanki za wykorzystaniem rachunkowości wzrostu gospodarczego w badaniu specjalizacji regionalnych," Ekonomista, Polskie Towarzystwo Ekonomiczne, issue 2, pages 235-258.
    11. repec:lic:licosd:15905 is not listed on IDEAS
    12. Malik Curuk & Suphi Sen, 2023. "Climate Policy and Resource Extraction with Variable Markups and Imperfect Substitutes," Journal of the Association of Environmental and Resource Economists, University of Chicago Press, vol. 10(4), pages 1091-1120.
    13. Ardelean, Adina & Lugovskyy, Volodymyr, 2010. "Domestic productivity and variety gains from trade," Journal of International Economics, Elsevier, vol. 80(2), pages 280-291, March.
    14. Behrens, Kristian & Murata, Yasusada, 2012. "Trade, competition, and efficiency," Journal of International Economics, Elsevier, vol. 87(1), pages 1-17.
    15. Evgeny Zhelobodko & Sergey Kokovin & Mathieu Parenti & Jacques‐François Thisse, 2012. "Monopolistic Competition: Beyond the Constant Elasticity of Substitution," Econometrica, Econometric Society, vol. 80(6), pages 2765-2784, November.
    16. Wai Woo, 2011. "Status and welfare under monopolistic competition," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 36(2), pages 227-239, February.
    17. Fujita, Masahisa & Thisse, Jacques-François, 2009. "New Economic Geography: An appraisal on the occasion of Paul Krugman's 2008 Nobel Prize in Economic Sciences," Regional Science and Urban Economics, Elsevier, vol. 39(2), pages 109-119, March.
    18. J.Peter Neary, 2001. "Of Hype and Hyperbolas: Introducing the New Economic Geography," Journal of Economic Literature, American Economic Association, vol. 39(2), pages 536-561, June.
    19. Martin Andersson & Sara Johansson & Hans Lööf, 2012. "Firm Performance and International Trade – Evidence from a Small Open Economy," Chapters, in: Charlie Karlsson & Börje Johansson & Roger R. Stough (ed.), The Regional Economics of Knowledge and Talent, chapter 13, Edward Elgar Publishing.
    20. Etro, Federico, 2017. "The Heckscher–Ohlin model with monopolistic competition and general preferences," Economics Letters, Elsevier, vol. 158(C), pages 26-29.
    21. Gali, Jordi, 1995. "Expectations-driven spatial fluctuations," Regional Science and Urban Economics, Elsevier, vol. 25(1), pages 1-19, February.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:enepol:v:100:y:2017:i:c:p:181-190. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/enpol .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.