With elections in many states, political parties are competing with each other for the promise of free power led by the Aam Aadmi Party. Free electricity to households up to 300 units/month, free electricity to farmers and waiver of pending bills have been promised. Who benefits or loses from such promises?
free power problem
Let us first look at subsidized power supply for agriculture. Backed by state subsidies, electricity charges for agriculture are low in most states – often less than ₹1/unit – and free in some states such as Punjab, Tamil Nadu and Karnataka. While it helps in ensuring food security and boosting rural livelihoods, free electricity has many adverse effects. Inefficient use of electricity and water, neglect of quality of service by distribution companies leads to frequent power failures and motor burns, and increased subsidy burden on state governments. Since nearly three-quarters of agricultural connections in the country are unmetered, consumption projections are often raised by distribution companies to increase demand for subsidies and project lower distribution losses. Any metering effort faces resistance as it is considered the first step towards charging a charge. The experience of the last 15 years shows that it requires significant political will to revoke the decision to provide free electricity. Opt-out plans are being worked out, but they are yet to be implemented. The metering issues as well as the provision of free electricity make the implementation of Direct Benefit Transfer difficult. All this frustrates farmers, distribution companies and state governments.
In view of the rising cost of power supply, it is necessary to provide concessional low tariff for small consumers. The current cost is around ₹7-8/unit, which is not affordable for many small houses. The situation is worse due to the economic slowdown and the pandemic. The basic necessities of a small house, such as lighting, fans, mobile charging and TV, require only about 50 units/month, which increases to around 100 units/month with a refrigerator. Lower tariffs for such consumers – let’s say, at half the cost of supply – can be justified. Monthly consumption would be 200-300 units only if the house has high-end appliances like air-conditioners. But in Delhi and Punjab, free electricity is already being provided for consumption up to 200 units per month.
Due to free electricity in Delhi, the total subsidy of the state is 11% of the total expenditure. In Tamil Nadu, where free electricity is available to households, half of the total subsidy has been earmarked for it. If the number and consumption limits of free electricity are further increased, the subsidy burden on the state governments will increase substantially. There is already a problem with the metering and billing of houses. This will also increase, especially since distribution companies may give limited attention to consumers with less revenue. Roof-top solar and energy efficiency are good eco-friendly options for homes, but providing free electricity to affluent homes will discourage them from taking them. The familiar, sad story of free or low-duty agricultural supplies plays out in this segment as well, with poor consumers being the worst hit.
limiting free power beneficiaries
Good power supply and service is essential to improve quality of life and encourage productive activities. This in turn requires accountability measures for financially stable distribution companies and quality service for all, especially small and rural consumers. Free or low-tariff electricity is a short-term respite at best, which should be provided to those who are in dire need of it. A government that has people’s interest in mind for a long time should work to limit the free power beneficiaries.
There are some ideas that will help in this journey. A fixed rebate of up to ₹ 200/month can be given to residential consumers in the electricity bill. The impact on smaller consumers will be significant compared to those on larger ones. Since discounts have been decoupled from consumption, distribution companies will not have an incentive to increase consumption. Similar exemptions can also be given to home-based enterprises, which pay higher tariffs in most states. There may be additional leeway for adoption of energy efficient appliances such as refrigerators, combined with state-level bulk procurement programs to reduce costs. The climate of mutual mistrust between small consumers and distribution companies has to change. There should be a one-time proposal for speedy resolution and settlement of the arrears. If any bill is more than three times of the previous bills, the distribution company should resolve the same without waiting for complaints. We expect people to question the prudence of broad-brush promises like free electricity, which cannot be sustained for long.
Sreekumar Naloor and N Josie are with Prayas (Energy Group), Pune
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