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A time varying approach on the price elasticity of electricity in India during 1975–2013

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  • Tiwari, Aviral Kumar
  • Menegaki, Angeliki N.

Abstract

Poor cost recovery rates and large subsidization of the agriculture and households by industrial and commercial users are two of the characteristics of the power sector in India. The paper applies a variety of linear and nonlinear unit root tests and a Kalman filter approach which can host time varying elasticities, to estimate the effects of various macroeconomic factors on the price elasticity for electricity in India during 1975–2013. The estimated price elasticity is −0.21 and the income elasticity is 0.41. The study finds that the electricity demand is affected by macroeconomic parameters such as trade and foreign direct investment. The findings of the study have implications to the policy makers and private investors who wish to invest in electricity supply utilities and infrastructure. The value of the estimated elasticity in the study is relatively smaller as compared to the previous studies reflecting, among other things, the fact that electricity demand is supply driven in India.

Suggested Citation

  • Tiwari, Aviral Kumar & Menegaki, Angeliki N., 2019. "A time varying approach on the price elasticity of electricity in India during 1975–2013," Energy, Elsevier, vol. 183(C), pages 385-397.
    • Handle: RePEc:eee:energy:v:183:y:2019:i:c:p:385-397
    DOI: 10.1016/j.energy.2019.06.049
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