India’s move to electrify every village and household in the country has been lauded as a success. Building on decades of public programmes, the Narendra Modi government completed 100 per cent village electrification in April 2018 and has now electrified nearly all ‘willing’ households. But, does connecting households to the electric grid resolve the electricity access challenge? The answer depends on whether electrons will flow through the wires and whether all consumers will be served equally and adequately.
Challenges of electricity access
Once connected to the grid, consumers face multiple challenges to stay plugged-in. From the perspective of the poor, there are three key challenges that need to be overcome: unreliable supply, poor consumer service, and unaffordable bills.
While government reports indicate 16-24 hours of supply to all homes, several surveys find lower supply hours, particularly, in the evening hours. Prayas Energy Group’s Electricity Supply Monitoring Initiative found that less than 20 per cent of rural locations receive continuous supply between 5 pm – 11 pm. This pattern of unreliable supply can be explained by an inherent disincentive to serve the poor. Electricity distribution companies (discoms) lose more than 50 per cent of their cost in supplying to low-consumption consumers.
Also read: Indian electorate cares about electricity – but the power sector remains deeply challenged
Discoms’ human resources have declined even as their consumer base has increased, leading to lower frequency of meter reading and billing. Irregular billing also causes a trust gap between discoms and consumers.
A major barrier to electricity access remains the concurrence between economic poverty and energy poverty. At the launch of Saubhagya, seven States (Uttar Pradesh, Bihar, Odisha, Jharkhand, Assam, Rajasthan and Madhya Pradesh) accounted for two-thirds of un-electrified households in India. These states are home to about two-thirds of India’s population living below the poverty line (BPL). Discoms in these states are already highly indebted, accounting for 42 per cent of accumulated debts of all discoms as on March 2016. Discoms in these seven states have higher losses and revenue gaps than national averages.
Centre’s lending hand
The responsibility for electrification has been shared by governments at the Centre and states. The Centre’s thrust has been to connect villages and households to the electric grid, by funding the costs of erecting poles and stringing wires.
The state governments have manoeuvred to keep electrons flowing through the wires. The key to states’ approach is redistributive welfarism – charging more to commercial and industrial consumers to keep electricity affordable to farmers and low-income homes. However, the pattern of electricity provisioning has been shaped by electoral priorities, creating perverse incentives for serving the poor. The result is a low-level equilibrium where the poor are locked-in to cheap but intermittent, low-quality electricity.
Also read: Poor electricity service quality plagues Modi’s Saubhagya scheme, but there are ways out
Way forward
The new Narendra Modi government at the Centre will need to rejuvenate its helping hand to support its state counterparts in dealing with diverse electricity access challenges, entrenched in state-level political economies.
This is a list of priority actions for the Modi government:
Beyond redistributive welfarism
To achieve universal access, India’s electricity policy needs a paradigm shift from ‘redistributive welfarism’ to ‘productive power’ that empowers and enables the poor to pay for better quality service through productive use of electricity.
Last year, the Modi government proposed a set of amendments to the National Tariff Policy (NTP). These were aimed at a shift away from consumer category-wise tariff to a progressive load and consumption-based tariff for all. While this will not address the cross-subsidy burden on large commercial and industrial consumers, it will make electricity affordable to small industries and entrepreneurs.
The Centre will also need to develop a broad strategy around ‘productive power’, seeking to promote rural industries and businesses with required support.
Also read: Modi’s Saubhagya scheme can create serious problems with electricity tariffs
Revisit definition of electrification
Existing definition of electrification, last defined in 2004, emphasises the existence of basic electricity infrastructure, keeping with the focus on grid expansion, and household access to the grid. Now that the grid has reached nearly all homes, it is important to revisit the definition, with a focus on ensuring access to reliable and affordable electricity for all.
Holding discoms accountable
Providing productive power requires holding discoms accountable for performance. While the Electricity Act of 2003 (EAct) has made provisions for standards of performances (SoP) to be met by the discoms, compliance and monitoring remains low, with significant discrimination across consumer categories. There must be a stricter legislative mandate for SoP compliance and equal treatment of consumers.
The Centre has been promoting smart meters for automation of billing and consumer accountability. These meters can also be used to monitor supply quality and for consumer information.
Better consumer protection
The Electricity Act included provisions for consumer protection. While the institutions for consumer grievance redressal have been put in place, these avenues remain dysfunctional and often influenced by the discoms. There is a need to strengthen these institutions to protect consumers’ interest, hold the discoms accountable and build trust between the two.
Also read: A key hurdle to Modi’s rural electrification scheme is the paperwork
Alternative service delivery
Greater dispersion of renewable energy is likely to cause disruption in the electricity distribution structure. Past attempts to restructure the distribution business for efficiency gain have been resisted. The future uncertainties in electricity distribution necessitate Centre and state planning for alternative service delivery models to ensure that the poor are not left out.
Strengthening rural distribution network
While the electricity grid has been extended to all corners of the country, the distribution network in rural areas remain fragile and prone to frequent breakdown. Distribution networks will require significant upgrades to meet future demand.
As the discoms have little incentive to invest in rural networks and many states’ lack fiscal capacity, the Centre will be required to continue investing in the rural distribution network, until such time as rural consumers climb up the virtuous cycle of receiving better service and being willing to pay more for quality.
Also read: Power distribution companies are slowing down Narendra Modi’s Saubhagya scheme
The subsidy conundrum
Even though the key to electricity reform in India is tariff rationalisation, there is no argument that for the time being, the government needs to subsidise electricity supply to the poor. The Centre has now proposed to make subsidies a collective responsibility of the states and the Centre. This is an important shift away from the earlier model where subsidy was the sole responsibility of the concerned state governments.
The Centre’s past guidelines to reduce and eliminate cross-subsidies in a timebound manner and raise revenue from low-paying consumers have been resisted by states. The Modi government must pay priority attention to the subsidy conundrum and develop a transition plan to gradually reduce subsidies without compromising the essential service for the poor. The plan should entail a shift from a rate-payer based cross-subsidy system to a tax-payer based fiscal subsidy system. It must embed a strategy to promote ‘productive power’ to enable the poor to pay and consider state-specific political economy forces. Large scale adoption of specific tools or solutions should be based only on successful pilot experiments.
Erecting poles and stringing wires across a country like India is an important step. But the work is not done until high-quality reliable power that enhances rural productivity is made available to India’s poor.
Ashwini K Swain is a fellow at Centre for Policy Research and executive director at Centre for Energy, Environment & Resources, New Delhi. Navroz K Dubash is a professor at CPR and coordinator of the Initiative on Climate, Energy, and Environment.
This is the thirteenth in a series of articles titled “Policy Challenges 2019-2024” under ThePrint-Centre for Policy Research (CPR) collaboration. A longer version of this piece is available on the CPR website at www.cprindia.org. The full policy document on a range of issues addressed in this series is available on CPR’s website.