Policy Wise: India’s Power Sector

Issues with Free power

Note4Students

From UPSC perspective, the following things are important :

Prelims level : Not much

Mains level : Paper 3- Issues with free power

Context

With elections around the corner in many States, political parties are competing with one another in promising free power.

Problems with free power

  • Supported by state subsidy, electricity tariff to agriculture is low in most States – often less than ₹1/unit – and is free in some States such as Punjab, Tamil Nadu and Karnataka.
  • There is inefficient use of electricity and water, neglect of service quality by the distribution companies leading to frequent outages and motor burn outs, and high subsidy burden on the State governments.
  • Inflated consumption estimates: Since nearly three-fourth of the agriculture connections in the country are unmetered, consumption estimates are often inflated by distribution companies to increase subsidy demand and project low distribution losses.
  • Any metering effort faces resistance as it is perceived as the first step towards levying charges.
  • Opting-out schemes are being made but do not seem to have uptake.
  • Difficulty in implementing DBT: Free power provision along with issues of metering make implementation of Direct Benefit Transfer difficult.
  • All this leaves farmers, distribution companies and State governments frustrated.
  • Subsidy burden on Governments: Due to free power in Delhi, the total state subsidy amounts to 11% of the total expenses.
  • In Tamil Nadu, where free power is available to households, half of the total subsidy is earmarked for this.
  • If there is further increase in number and consumption limits of free power, the subsidy burden on State governments will substantially increase.
  • Low adoption of solar power: Roof-top solar and energy efficiency are good environment-friendly options for homes but providing free power to well-off households will discourage them from taking these up.

Way forward

  • Free or low-tariff power is at best a short-term relief, which should be provided to those who desperately need it.
  • Give fixed rebate: A fixed rebate of up to ₹200/month for residential consumers can be provided in the electricity bill.
  • As the rebate is delinked from consumption, distribution companies won’t have an incentive to inflate consumption.
  • Rebate for adopting energy-efficient appliances: There can be additional rebates for adopting energy-efficient appliances like refrigerators, combined with State-level bulk procurement programmes to reduce the cost.
  • Addressing mutual mistrust: The atmosphere of mutual mistrust between small consumers and distribution companies has to change.
  • There should be quick resolution of arrears and one-time offers for settlements.

Conclusion

There is a need to question the wisdom of broad-brush promises such as free power, which cannot be sustained in the long run.

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