Power play

Delhi's subsidy rethink has a larger message

Power subsidy has been a popular plank for political parties over the years in India. Issues related to power cost for households and the promise of subsidised power are said to have played a decisive role in bringing the Arvind Kejriwal-led Aam Aadmi Party (AAP) to power in Delhi and winning re-elections. Predictably, the AAP made similar promises in other states, including Punjab, where it was recently voted to power with a decisive majority. The party had promised free power up to 300 units per month to households in the state. However, it now seems to be rethinking the idea of power subsidy. The party is perhaps realising that it is not a sustainable promise and affects developmental expenditure.

Mr Kejriwal last week announced that starting October 1, power subsidy will be given only to those who ask for it. He further elaborated that there are households in the national capital willing to pay and don’t want government subsidies. How this will actually be implemented remains to be seen, but it is being reported that the government will give households the choice of opting out. A similar option given by the Union government a few years ago to opt out of subsidy on liquefied petroleum gas cylinders was fairly successful. In principle, there is no dispute that subsidies should only be extended to households that are not in a position to pay. A higher subsidy bill leaves so much less with the government to spend on development. Extension of subsidy, particularly to non-deserving households, increases consumption and encourages wastage, which, in turn, raises the overall subsidy bill. Besides, subsidies increase demand, which can put pressure on the entire system. India is an energy deficient country and needs proper pricing.

However, all this is well-known and many households in Delhi were willing to pay even when the government started providing free power. So, why this rethink? Households in Delhi consuming up to 200 units a month get 100 per cent subsidy, while those using between 201 and 400 units get a subsidy of up to Rs 800. Delhi government has allocated Rs 3,250 crore in the current fiscal year for power subsidy from a budget of Rs 75,800 crore. Since Delhi with a revenue surplus is in a comfortable fiscal position, it is perhaps Punjab government’s finances that are driving the rethink in the party.

The Punjab government’s finances are stressed with a total debt of about 45 per cent of the state gross domestic product. As a result, the new AAP government led by Chief Minister Bhagwant Mann is finding it difficult to implement promises with limited resources, including the one on free power. It is likely that the idea of giving consumers the choice to opt out of free power is being tested in Delhi and can later be taken to Punjab. The Punjab government’s existing power subsidy bill is estimated to be over Rs 10,000 crore, and out of which over Rs 7,000 crore goes to the agriculture sector. Free power to households will increase the bill substantially. However, at a broader level, irrespective of the trigger, the rethink on subsidy needs to be welcomed. This, in a way, also underlines the limit of competitive populism. All political parties must take note of it.