Power subsidy: Arvind Kejriwal’s volte-face

Arvind Kejriwal, chief minister of Delhi, has come up with a proposition: ‘From October 1, 2022, electricity subsidy will be given only to those households who ask for it’. This is bizzare.

If the head of a state takes an in-principle decision to give subsidy to anyone who wanted it, as a natural response, almost everyone will say ‘Yes’. But, over 75% of the households are already enjoying a subsidy. So, why ask them?

There is something more than what meets the eye.

At present, households (HHs) consuming up to 200 units per month are fully exempt from paying any charges. Their number is around three million. For HHs consuming between 201–400 units per month, the State government gives a flat subsidy of Rs 800. There are about 1.7 million households in this category.

On units supplied to HHs with a monthly consumption of less than 200 units, the power distribution companies or discoms, incur under-recovery to the full extent of the cost of purchase and distribution – as payment by such consumers is ‘nil’.

On units sold to HHs with consumption of more than 200 units but less than 400 units, their under-recovery is Rs 800 per HH. The discoms get reimbursement of these under-recoveries from the Delhi government as subsidy. The annual burden of this amounts to about Rs 3,300 crore.

Under this dispensation, there is absolutely no confusion as every HH irrespective of his financial position -- poor, middle class or rich – is eligible for subsidy, the only qualifying criterion being the monthly consumption.

Yet, if Kejriwal has floated the proposal, it can only point towards a possibility of the government withdrawing the subsidy; the proposed modus operandi has been chosen merely to camouflage the real intent. There is a precedent to it.

Under the direct benefit transfer (DBT) of LPG, a scheme nicknamed PAHAL (Pratyaksha Hastaantarit Laabh) launched from January 1, 2015, the Prime Minister had given a clarion call to the beneficiaries to give up subsidy. Over 10 million HHs responded and gave up their subsidy. The government followed it up by denying subsidy to HHs having an annual income of more than Rs 10 lakhs; that number was about 15 million. From June, 2020, it quietly stopped the subsidy scheme.

Modi’s decision to withdraw LPG subsidy was prompted by budgetary constraints of the Centre. But this could not be the reason behind Kejriwal’s move in case of power subsidy in Delhi as its finances are in good shape. So, what could be the trigger?

This may have to do with the challenge the Aam Aadmi Party is facing in Punjab where it has recently got a resounding mandate on the promise of a host of freebies – free power being one.

In Punjab, the party had promised to supply free power to every HH on consumption up to 300 units per month. This will entail an outgo of over Rs 10,000 crore per annum (6 million HHs at an average per unit cost of Rs 5). Given the precarious finances of the State (faced with a debt of about Rs 300,000 crore, almost all of its tax revenue is consumed in servicing this debt), the party is finding it difficult to garner resources for funding the freebie.

So, the Delhi CM may be preparing the ground for wriggling out of the promise. He could create a narrative by citing that “Delhiites are willing to give up their claim to power subsidy”. If, he can demonstrate that in Delhi people have actually given up (just as Modi did with LPG subsidy), he could goad people of Punjab into saying that they also don’t want.

If, indeed things pan out as contemplated by Kejriwal, it will be good economics; unambiguously for Punjab, which will be spared of a perpetual drain on its exchequer and further aggravation of its financial woes. It will be good for Delhi too as resources thus saved can be put to more productive use. Furthermore, this will send a message to other states – refrain from promising such freebies. In fact, as a matter of principle, political parties should be barred from promising freebies particularly when these are not targeted and meant for all. If at all any State government wants to give subsidy, it should be given to persons who cannot afford to pay the market-based or cost-plus price from their limited income. In other words, it has to be for the poor only.

Moreover, the state must not use discoms for extending subsidy. The former should give subsidy directly to the target beneficiaries even as the latter should have the freedom to fix tariffs, taking into account the cost of purchase, wheeling and distribution. In short, all states should go for DBT of power subsidy.

To promote competition, private firms should be allowed in the distribution business. However, for a level playing field, the infrastructure for transmission and distribution of power should be stripped from discoms and vested in an independent entity. All suppliers should have access to it on a ‘common carrier’ principle in a transparent and non-discriminatory manner.

(The writer is a policy analyst)