Electricity is one of the most important engines of good living. It fuels the economy. The availability of electricity determines several benchmarks of upward mobility, impacts almost all socio-economic indicators.
India needs a radical but holistic power sector reform. Reforms need to target and address some of the long-standing issues that cripple the sector. An inefficient energy sector reduces competitiveness, harms economic growth and hampers human development. It excluded most of the poor for decades.
*Poor allocation of resources. Incurs a high intangible cost. Not fair
Power reforms must begin by decoupling the electoral process from unfounded power grants.
India produces the cheapest electricity in the entire Asia-Pacific region, which however does not show up in consumers’ electricity bills. Most middle-class consumers, not covered by subsidy schemes, pay double the cost of production. The poor among them end up paying about 10% of their household expenses in electricity bills. They accept the “cross-subsidy” frameworks of the political system and are persuaded, persuaded and even coerced into paying for neighbors, for wealthy farmers and for most of those who do not deserve the subsidy. They do not express their anguish (but) suffer their bad luck.
Consumers must pay the true costs; not what politicians are able to “extract”.
* Power reform failed. The electricity sector must be freed up
The distribution entities (Discoms) are the most vulnerable part of the electricity sector. Despite high retail electricity tariffs, most Discoms are perpetually in the red, invariably bailed out by the government (the last bailout was in the order of Rs 40,000 crore). According to the Union Ministry of Energy portal, PRAAPTI, the unpaid dues of Discoms to power generators exceed Rs 1.2 lakh crore. They are also inefficient service providers and lose customers. The future is dark. Most resourceful commercial and industrial (C&I) customers (cash cows) are charged very high rates. They are looking for alternatives, will negotiate the purchase of electricity through open access.
Electricity sector entities must operate as commercial entities. There are several examples of political overreaching that have destroyed public enterprises; even as taxpayers continue to fund entities that subtract value.
Power sector institutions are inefficient. Aging infrastructure, technical and commercial losses, thefts, transmission losses and thefts are commonplace. There are also other challenges. Given. However, framing inefficiency, as the challenge is akin to blaming it on “the other door,” suits the regime. It masks the real problem, ie political interventions and political ambitions.
* Consequences of a political overflow
Upgrading and modernization are short-lived in a capital-intensive industry. Technology and investment in the system can reduce distribution losses. There are several fruits within easy reach. Even a 1% increase in efficiency reduces losses by Rs 3,500 crore. Similarly, Discoms need the “freedom” to negotiate with producers, based on the “electricity purchase cost adjustment framework”. They must be empowered. Energy entities need financing to expand coverage and improve customer satisfaction. However, these decisions are made at the department. Example: Solar power projects via dedicated agriculture feeder roads (agro-power is the most subsidized) can save hundreds of crores. Intangible assets, like environmental benefits, are even higher.
Free energy has a huge and avoidable tax implication. But there are more serious consequences. When some get free electricity, it also opens the door to others, distorting demand patterns. This incentivizes politicians to offer “that and more”. They induce and encourage this behavior.
* Electricity is a public service and a commodity, it must be paid for. It’s not a right
Culture takes root. History tells us that reversal is difficult. Likewise, encourages and incentivizes the use of groundwater, leading to falling water tables. The ecological costs and the price are staggering.
Crux study of 25 states and 16,000 consumers highlights that ‘theft’ is not limited to those who cannot afford to pay: even the largest and wealthiest consumers resort to theft , “tampering” and other unfair practices. This “clawback” mindset is justified on the grounds that they are paying higher fares on the one hand and paying for most others who do not deserve the subsidy on the other. It sets bad precedents.
A Crux study of election manifestos emphasizing “economy and development” points to widespread malevolence. There have been virtually no instances where the incumbent or challenger offers “growth for the votes”. The study of 100 state electoral manifestos confirms an exacerbated culture of translating “gratitude into votes”. Free and subsidized electricity without merit is one of the main “attractions”. Most “promise the ‘use’ of state resources to ‘give’ and provide targeted private benefits as opposed to broad-based services that many would access.
*Extremely popular election promise grants. The most attractive “free” energy
More than 75 percent of respondents in the study called the unfounded subsidies reckless and giving away taxpayers’ money for electoral gains, undermining “fairness” and “justice.” Most of them think it encourages corruption, erodes ethics; amounts to corrupting voters. They are both disappointed and upset that the electoral commission does not treat these “promises” as a corrupt practice. The distribution of money and alcohol is so called.
A majority of recipients believe that “free” is not free; and there is a guarantee and “future costs”.
Vulnerable and deserving people such as marginal farmers, people below the poverty line should be supported. However, subsidies should be replaced by an effective direct cash transfer. The behavioral impact will be much greater if people are made to understand that electricity is a commodity, that it has a cost and that it must be paid for. Payments can then be executed. Consumers will also imbibe the discipline needed to use a scarce “commodity” wisely.
* Gain popularity and endorse legitimacy
The promises are often opaque, told as “redistribution” and presented as “social justice”. The story passes the examination of the electoral commission, gains in legitimacy.
Free and subsidized electricity without merit is an attractive slogan. And works. But must be fought by the people. They finally pay the price.
The power reforms did not bear fruit; are long overdue. However, they will need to be holistic, approached with an open mind and clear thinking. They must address the elephant in the room, that is to say the political actors and their ambitions. Reforms require courage and conviction in equal measure.
Disclaimer: The views expressed in the article above are those of the authors and do not necessarily represent or reflect the views of this publishing house. Unless otherwise indicated, the author writes in a personal capacity. They are not intended and should not be taken to represent the official ideas, attitudes or policies of any agency or institution.
Tags attributed to this article: