Abstract

The LPG subsidy policy of the Indian government was caught in the regulated vs. deregulated price regime debate, as the policymakers sought to balance the twin objectives of providing subsidized LPG to the needy with controlling the burden on the public exchequer. LPG being an essential commodity was subsidized by the government to help the people in general and the poor in particular so that they could benefit from it, but the economically advantaged people were proactive in garnering the benefits of the scheme. Further, the government was facing the problem of a budget deficit caused by allowing a huge subsidy for energy fuel products. However, the core objective of the subsidy program was in question as a sizable number of the targeted beneficiaries were unable to benefit from it.

Learning Objectives

The case is structured to achieve the following Learning Objectives:

• Understand the demand and supply model of LPG in India.
• Understand the subsidy issues related to LPG pricing in India.
• Analyze the price change impact of LPG on other related essential consumer products, as guided by the ‘Law of Demand.’
• Understand the mechanisms for standardizing the subsidy administration in India.
• Explore the strategies that would help strike a balance between LPG subsidy and financial burden on the government exchequer.

Keywords

Law of demand, Demand and supply model, Determinants of demand, Subsidy, Subsidy policy, Regulated vs. deregulated price regime, Budget deficit, Controlling costs, Price change impact, Subsidy impact, managerial economics, Price control, LPG