{"id":240966,"date":"2023-05-04T20:53:06","date_gmt":"2023-05-04T15:23:06","guid":{"rendered":"https:\/\/blog.forumias.com\/?p=240966"},"modified":"2023-05-04T20:53:06","modified_gmt":"2023-05-04T15:23:06","slug":"tariffs-on-electricity-water-and-gas-the-cost-of-inefficient-pricing","status":"publish","type":"post","link":"https:\/\/forumias.com\/blog\/tariffs-on-electricity-water-and-gas-the-cost-of-inefficient-pricing\/","title":{"rendered":"Tariffs on electricity, water and gas: The cost of inefficient pricing"},"content":{"rendered":"\n

Source<\/strong>– The post is based on the article \u201cTariffs on electricity, water and gas: The cost of inefficient pricing\u201d <\/strong>published in \u201cThe Indian Express\u201d <\/strong>on 4th May 2023<\/strong>.<\/p>\n

Syllabus: <\/strong>GS2- Government policies and interventions. GS3- Economy<\/p>\n

Relevance<\/strong>– Pricing of essential goods and services<\/p>\n

News<\/strong>– The article explain the issues of tariff on utilities<\/p>\n

What are the issues with tariffs on utilities in India?<\/strong><\/h2>\n

The pricing of utilities like electricity, water and gas is a complicated exercise<\/strong> in India. Prices are largely administered<\/strong>. They are not market driven.<\/strong> They seldom cover the costs of provision. <\/strong><\/p>\n

They are a deeply political decision.<\/strong><\/p>\n

Take the example of electricity.<\/strong> Tariffs levied by power distribution companies across states do not reflect the cost of supplying power<\/strong>. In 2020-21, the average cost of supplying power was pegged at Rs 6.19 per unit. In comparison, the revenue from discoms operations worked out to only Rs 4.21 per unit.<\/p>\n

In the case of water,<\/strong> the recovery is even lower. According to some estimates, water boards across the country are able to recover only around a third of their operation and maintenance costs.<\/p>\n

In the case of the Delhi<\/a> Jal Board, in 2021-22, its projected income was insufficient to cover its operating costs and its interest liability. <\/strong><\/p>\n

The distribution of tariffs<\/strong> among different consumers is another issue . In most states, power and water tariffs paid by agricultural consumers<\/strong> are a fraction of those paid by industrial and commercial users<\/strong>.<\/p>\n

For instance, in 2020-21, power tariffs for commercial users were nine times more than<\/strong> those for agricultural consumers, and industrial tariffs were seven times higher.<\/p>\n

In comparison, in developed countries,<\/strong> tariffs for industrial consumers tend to be lower than those for households.<\/p>\n

There are multiple pricing regimes. Chhattisgarh\u2019s tariff order<\/strong> is an example of this. Industrial consumers are further divided into six slabs and each slab is charged a different fixed and energy cost<\/strong>. Domestic consumers are divided into five slabs.<\/p>\n

In the case of gas too, there are multiple pricing regimes<\/strong> \u2014 from the administered pricing mechanism (APM) framework to the non-APM and imported LNG regimes.<\/p>\n

What is the way forward for tariffs on utilities in India?<\/strong><\/h2>\n

Consumers should get the full benefits of lower gas prices during a down cycle, and producers get the full upside when prices rise.<\/p>\n

The imposition of the floor and ceiling <\/strong>is arbitrary<\/strong> but so is the proposed increase in gas prices every year.<\/p>\n

Prices tend to act as signals <\/strong>for both producers and consumers. Market based pricing tends to lead to optimal usage, increased efficiency and better outcomes.<\/strong><\/p>\n

For instance, higher prices that reflect the true costs of electricity and water <\/strong>would perhaps encourage farmers to shift away from water-guzzling crops. But their low cost encourages inefficient usage.<\/strong><\/p>\n

What are the impacts of lower tariffs?<\/strong><\/h2>\n

Costs are more than revenues. So, the supplying entities have little funds for repairs and maintenance or invest in capacity enhancement.<\/strong><\/p>\n

As per a CAG report, of the 1,797 unauthorised colonies<\/strong> in Delhi, 1,573 colonies had not been provided with sewerage facilities as of March 2018. Moreover, 567 unauthorised colonies were still dependent on tube-wells\/hand-pumps. <\/strong><\/p>\n

Higher tariffs would have allowed for greater investments by the Delhi Jal Board to ramp up water supply in these areas.<\/p>\n

The provision of free or heavily subsidised utilities<\/strong> is not a governance model.<\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"

Source– The post is based on the article \u201cTariffs on electricity, water and gas: The cost of inefficient pricing\u201d published in \u201cThe Indian Express\u201d on 4th May 2023. Syllabus: GS2- Government policies and interventions. GS3- Economy Relevance– Pricing of essential goods and services News– The article explain the issues of tariff on utilities What are… Continue reading Tariffs on electricity, water and gas: The cost of inefficient pricing<\/span><\/a><\/p>\n","protected":false},"author":10320,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"footnotes":""},"categories":[1230,9],"tags":[212,10500],"class_list":["post-240966","post","type-post","status-publish","format-standard","hentry","category-9-pm-daily-articles","category-public","tag-gs-paper-2","tag-indian-express","entry"],"jetpack_featured_media_url":"","views":{"total":0,"cached_at":"","cached_date":1702710934},"jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/240966","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/users\/10320"}],"replies":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/comments?post=240966"}],"version-history":[{"count":0,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/240966\/revisions"}],"wp:attachment":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/media?parent=240966"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/categories?post=240966"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/tags?post=240966"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}