Bite the bullet on utility pricing

The most basic of economics taught at the school level talks about demand and supply and the role of pricing in ensuring equilibrium and clearing markets. However, in India, despite huge shortages and inefficiencies in supply and consumption, we refuse to move to market-determined pricing.

In the case of water, the tariffs are flat, unmetered charges that do not reflect the volume of consumption, the cost of supply or indeed the purpose of consumption. For electricity services, there is a demand charge that reflects connected or sanctioned load and metered tariffs that are not differentiated either by time-of-day or the load on a system at any given point in time. In the case of transport, there is really no real differentiation in taxes on either the fuel efficiency of a vehicle or the road space it occupies. The one-time road tax on motor vehicles also limits the degree of freedom available with authorities to charge for congestion dynamically or road infrastructure improvements - unless it is done through the fuel bills.

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