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How AAP govt can rationalise free electricity, reduce subsidy burden, and keep poll promise

Over 80 per cent households benefit from the generous power subsidy in Delhi, including many middle and higher income households.

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The politics and rationale of subsidising electricity supply has been much in the news of late. Delhi Chief Minister Arvind Kejriwal announced on 5 May 2022 that only those who ‘opt’ for free electricity will get it from 1 October, with the expectation that the well-off consumers will surrender their subsidy and the money thus saved would be used to improve schools and hospitals in Delhi. On 6 August 2022, Prime Minister Narendra Modi expressed his concern about the financial unsustainability of populist politics of providing free electricity, considering how states already have pending subsidy amounts to be paid to the power distributing companies and unpaid bills of power generating companies, which eventually end up increasing the cost of electricity for the consumers. Though the prime minister was referring to several states, he was also taking a jibe at the Aam Aadmi Party government in Delhi that had won partly due to its election promise of giving free electricity and water to households.

Regardless of the criticism by the Bharatiya Janata Party-led central government, the AAP government is moving ahead to operationalise its optional electricity subsidy scheme. As countdown to 1 October begins, the AAP government has planned to start a door-to-door campaign to inform the people of Delhi on how to send in their responses. The consumers are expected to give a yes or no response digitally or by filling up a form they will receive with their electricity bill. Recently, a mobile number has also been released. Consumers can call or send a WhatsApp text to that number to continue getting the subsidy. Moreover, this exercise has to be repeated every year to respond to the changing preferences of the people.

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Enhanced expenditure on subsidies

No doubt that the reduced electricity subsidy will help create a revenue surplus for the state as well as enable the government to pay a relatively lower subsidy amount to the DISCOMS in good time. But questions that arise are: Is such a cumbersome process necessary for rationalising electricity subsidy? How many people would voluntarily opt out of the free electricity scheme? Are there no better ways of targeting the subsidy to more deserving lower-income households?

The Delhi government offers direct subsidy mainly on three services: electricity, water and bus rides for women. With Rs 3,250 crore allocation in the 2022-23 budget for power subsidy to consumers through DISCOMS, electricity claims the largest share of 77 per cent of the state subsidies, followed by water (14 per cent) and free public transport for women (6 per cent). Keeping its election promise, since 2014, the AAP government has offered 200 units of electricity free of cost and a 50 per cent subsidy of up to Rs 800 on consumption of 201 to 400 units per month to all households irrespective of their income level. Households using more than the permissible free electricity have to pay the applicable rate on the entire amount consumed.

The National Capital Territory (NCT) of Delhi is considered to be a rich state with the potential of generating revenue well above its expected expenditure. As per the 2021 State Finance Audit Report of the Comptroller and Auditor of General (CAG) of India, Delhi had recorded a consistent revenue surplus from Rs 8,656 crore in 2015-16 to Rs 7,499 crore in 2019-20. However, the Delhi government’s expenditure on subsidies increased by 92.38 per cent during the same period – from Rs 1,867.61 crore to Rs 3,592.94 crore. As a result, the Delhi government faces the risk of going into the red.

It is important to note that the electricity subsidy given to the lower income households frees up some funds to be spent on other basic requirements such as better nutrition and health. It also works as an incentive to limit their power consumption so as to remain within the subsidised tariff block. However, a way too liberal free electricity provision can also lead to wasteful consumption that can be counterproductive.

Also read: AAP-ruled Punjab is missing the ‘Delhi model’ Kejriwal is promising in Gujarat and Himachal

Rationalising Delhi’s power subsidy

According to a 2019 study by the Centre for Policy Research (CPR) and Regulatory Assistance Project (RAP) called ‘Mapping Power’, more than 80 per cent households benefit from the generous power subsidy in Delhi, including many middle and higher-income households. Also, as per the University of Pennsylvania’s Center for the Advanced Study of India–National Capital Region (CASI-NCR) 2017 survey, about 65 per cent households in Delhi use less than 200 units of electricity per month. 

Considering the fact that about 40 per cent of Delhi’s population lives in slums and unauthorised colonies and is taken to be coterminous with falling in the lower-income strata, it can be surmised that significant number of higher-income households also get electricity bills with zero amount, particularly in the months when they do not use air conditioners. Extending free electricity that entails sizeable public investment to well-off households is definitely beyond the basic obligations of a welfare state. Hence, one can make a compelling case for rationalising the electricity subsidy in Delhi.

PM Modi’s critical remarks are unlikely to drive the AAP government to go back on its election promise and completely do away with the electricity subsidy, which will be against the party’s political sensibility. But it makes good sense to better target the lower income households as well as reduce the subsidy burden. It will help improve the overall revenue situation of the state as well as facilitate timely payments to the DISCOMS without compromising on the societal goal of giving free electricity to the lower-income households. 

Hence, about 25 per cent reduction in the threshold of free electricity provision, and offering 50 per cent subsidy on the consumption of 151 to 300 units instead of the prevailing 201 to 400 units, will be well within the ambit of the sense and sensibility of extending electricity subsidy to those who need it the most in Delhi. 

Pushpa Pathak is Senior Visiting Fellow at the Centre for Policy Research, New Delhi.

(Edited by Ratan Priya)

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