NO : WP-2026-017
AUTHOR : Nirmala, Manisha Jain and Disha Gupta
TITLE : Price Responsiveness of Household Electricity Demand under Increasing Block Tariffs: Evidence from India
ABSTRACT :
Increasing block tariffs (IBTs) are widely used in household electricity pricing to balance the dual policy goals of efficiency and affordability. This paper assesses the effectiveness of IBTs by examining how household electricity demand responds to prices and how this responsiveness varies with income. Using household panel data on monthly electricity consumption and appliance ownership matched with state-year IBT schedules, we account for the nonlinear structure of tariffs, appliance heterogeneity, and seasonal variation in electricity demand. We find that residential electricity demand is price inelastic in India, with a price elasticity of −0.12. Price responsiveness also varies nonlinearly with income, following an inverted-U pattern: it is highest among middle-income groups and lowest among the lower and higher-income groups. Our estimate of price elasticity is lower than those reported in previous studies using aggregate electricity consumption data. This suggests that aggregate demand estimates may mask differences in electricity demand associated with appliance ownership and use. Also, the results on price responsiveness across income groups indicate the limited potential of pricing policies in improving efficient electricity use.
Keywords: Household electricity demand, Increasing block tariffs, Conditional demand analysis, Price elasticity, India
JEL Code: D12, L94, Q41, Q48
Weblink: http://www.igidr.ac.in/pdf/publication/WP-2026-017.pdf
