Inadequate LPG price hike compels the vulnerable to subsidize the wealthy: Advocata Institute

Additionally, the cross-subsidization model presents two economic risks. First, low prices may discourage conservation and the switch to alternatives like firewood and briquettes. This keeps the demand for LPG high and puts continued strain on foreign exchange reserves. Second, pricing below actual costs creates a false price ceiling. Private companies cannot compete with subsidized prices and may exit the market. This situation deters new businesses and limits investment in the industry. Advocata Institute calls on the government to move away from this cross-subsidization model and adopt a pricing system that reflects actual costs. They recommend using targeted cash transfers to assist vulnerable households directly, avoiding ineffective subsidies that mainly benefit wealthier groups. Advocata Institute is an independent policy think tank in Sri Lanka that promotes economic growth through free markets.