How does the APM affect the government revenue? Discuss.

Question

Read sixth paragraph under the heading ‘Role of Government in Regulating Prices’ and answer the question.

For preventing hoarding and keeping the prices of essential commodities within reasonable levels, and to facilitate their availability, the government fixes the prices and makes it mandatory for the traders to sell goods in the market at those price levels. Those who do not follow stipulated price levels are penalised by government through various laws. Goods such as kerosene, diesel, Liquid Petroleum Gas, Compressed Natural Gas and Piped Natural Gas are examples of goods whose prices are partly or solely subsidised by the government and sold under Administrative Price Mechanism.

How does the APM affect the government revenue? Discuss.

Answer 1

• Goods like Kerosene, Diesel, LPG, CNG and piped Natural Gas are subsidised by the government. . 
• Under subsidised scheme the government purchases the goods at high prices and sells them at low prices. 
• The loss is the subsidy and the. government bears the loss. 
• Government is now 3% of its expenditure on subsidies.