Implicit effective subsidy on a commodity (e.g. LPG) to rich means
Last updated May 30, 2026
Correct Answer:
Option B —
Difference between normative rate and actual subsidy
To understand this concept, it helps to break down how "implicit subsidy" is evaluated in public finance and economic analysis (such as in India's Economic Surveys):
The Normative Rate: This is the benchmark or target rate at which the government intends to price a commodity or cap a subsidy for a specific target group (e.g., ensuring subsidies only go to the poor, while the wealthy pay the market or standard rate).
The Actual Subsidy: This is the benefit that a consumer actually ends up receiving, either due to gaps in policy targeting, uniform pricing, or universal access to a subsidized good.
The "Implicit" Aspect to the Rich: When well-off households consume a subsidized commodity (like LPG cylinders, piped water, or electricity) meant for vulnerable sections, they are receiving an unintended benefit. The implicit effective subsidy measures the gap between what the policy dictates they should be contributing/paying (the normative benchmark) versus the actual subsidization they absorb through their high consumption levels.
Answer verified by Quintessence Classes faculty — Karan Nagar, Srinagar.