From UPSC perspective, the following things are important :
Prelims level : Not much
Mains level : Paper 3- Uniform energy tariff and inclusion of electricity duty in GST
Electricity prices vary not just among end users, but also between states, where a complex patchwork of different taxes and subsidy regimes can leave consumers in some states paying five times more for their electricity than their counterparts in neighbouring states.
Deprivations faced by Low Income States in India
- The low-income States (LIS) are deprived on many fronts.
- They have low accessibility to credit, low investments, low power availability and accessibility, and high energy costs.
- The high-income States (HIS), on the other hand, have a big share in industry and commerce because they are not deprived on the same fronts.
- The six HIS (Maharashtra, Tamil Nadu, Gujarat, Karnataka, Andhra Pradesh and Telangana) together account for 56.4% of factories and 54.3% of the net value added to the country, while their share in population is only 32.3%.
- Among other reasons, this is because they have higher credit and financial accessibility (55% of total institutional credit and 56% of total industrial credit went to these five HIS) at the credit-deposit ratio.
- On the other hand, the six LIS (Bihar, Jharkhand, U.P., M.P., Odisha, and Rajasthan) access only 15% of total institutional credit and barely 5% of total industrial credit, while their share in population is 43%.
- The maximum benefit of the Atmanirbhar package (₹20 lakh crore) also went to the HIS as they have a higher share in industry.
Role of power supply in disparity among states
- Among other reasons, the availability of adequate quality power at the cheapest rate attracts investments, either private or public, in a particular location.
- Due to a complex patchwork of different taxes and subsidy regimes, electricity prices vary not just among end users, but also between states.
- This can leave consumers in some states paying five times more for their electricity than their counterparts in neighbouring states.
- Energy India Outlook 2021 provides two solutions.
1] Eliminate price discrimination by synchronising all regional grids
- The power-producing States have the advantage of power, being available at lower prices.
- This problem can be addressed by synchronising all the regional grids.
- This will help the transfer of energy (without compromising quality).
- The idea is of ‘One Nation, One Grid, One Frequency’.
- Further, this will pave the way for establishing a vibrant electricity market and facilitate the trading of power across regions through the adoption of the ‘one tariff’ policy.
- The Central Electricity Regulatory Commission is in the process of implementing a framework of the Market-Based Economic Dispatch and moving towards ‘One Nation, One Grid, One Frequency, One Price’.
2] Include electricity duty in GST
- Apart from uniform cost, the power sector also needs uniformity in electricity duty charged by different States.
- In general, the association between income and electricity consumption is direct.
- Thus, only 32% of the population used 50% of power.
- Contrary to this, six backward States got only 25% of the power though their share of the population is 43%.
- Therefore, it is clear that the substantial proportion of the power cost incurred in HIS is also borne by the LIS which buy those industrial products, as the input cost of power has already been included in the product’s price.
- Further, this situation justifies the fact that the final costs of power consumption are also borne by other States.
- Thus, the electricity duty should be redistributed among the States under the ambit of GST equally shared by the CGST and SGST.
In order to attain higher economic growth, the States should raise the issue of uniform energy tariff and inclusion of electricity duty under the ambit of GST.