SC flags fiscal strain of pre-poll freebies, questions power subsidies

Bench led by the CJI warns that unchecked largesse strains taxpayers, deepens deficits and may weaken economic foundations as States expand subsidies ahead of elections

The burden of states rolling out subsidies and welfare benefits before elections ultimately falls on taxpayers, the Supreme Court observed on Thursday, expressing concern over the growing trend in this respect.

 

A Bench led by Chief Justice of India (CJI) Surya Kant, along with Justice Joymalya Bagchi, and Justice Vipul M Pancholi, was hearing a petition filed by Tamil Nadu Power Distribution Corporation, which has challenged Rule 23 of the Electricity (Amendment) Rules, 2024, in Tamil Nadu Power Distribution Corporation v Union of India & Anr.

 

The court issued notice to the Union government and other respondents, seeking their responses.

 

During the hearing, Justice Surya Kant questioned how governments proposed to finance schemes projected as “free” services. Any expenditure, he remarked, has to be sourced from public funds.

 

Unchecked distribution of largesse could weaken the country’s economic foundations, he said, particularly when many states were running a revenue deficit.

 

“Who will pay for it (the states’ ‘largesse’)? This is taxpayers’ money,” the CJI said.

 

While acknowledging that governments had a constitutional obligation to assist those who lacked access to essential services such as education and basic utilities, the Bench flagged the need for better targeting. 

 

Benefits, it observed, should not disproportionately flow to those who can pay for them.

 

“The economic development of the nation will be hampered with this kind of largesse distribution,” said the chief justice.

 

The chief justice also referred to electricity-subsidy schemes, pointing out that in some instances even affluent landowners received free power. Public resources, he said, cannot be treated as limitless, and policymakers must ensure fiscal prudence. He underlined that a significant portion of annual state revenue was often wiped off by salaries and subsidies, leaving limited scope for capital expenditure and long-term development.

 

The timing of such schemes also drew judicial scrutiny. The Bench noted that welfare announcements frequently coincided with impending elections and suggested that political stakeholders and policy thinkers reflect on the sustainability of such practices.

 

Senior Advocate Gopal Subramaniam, appearing in the matter, argued that allocation of public resources must be equitable and that widening fiscal imbalances raised serious governance concerns.

 

Justice Bagchi emphasised the importance of structured fiscal planning. He observed that if a government intended to give subsidies, those must be transparently incorporated in budgetary allocations.

 

He also expressed reservations about situations where concessions were given after electricity tariffs had been set by statutory regulators, cautioning that such post-facto intervention might dilute regulatory autonomy and introduce uncertainty in financial administration.

 

The power discom has said Rule 23 of the Electricity (Amendment) Rules, 2024, goes beyond the scope of the Electricity Act, 2003, and is unconstitutional.

 

The Rule mandates that the difference between the approved cost of power supply and the tariff realised from consumers must not exceed 3 per cent, and requires that any shortfall be liquidated within a stipulated timeframe. It further provides that outstanding gaps be recovered along with an additional charge computed at the base rate of the late payment surcharge.

 

According to the discom, this framework could put financial stress on distribution companies. The petition says that clearing accumulated revenue gaps through surcharge mechanisms may either necessitate steep tariff revisions or compel substantial fiscal support from state governments.

 

Although the plea does not directly attack subsidy schemes, it arises against the backdrop of state policies granting concessional or free electricity to certain consumer categories, an issue that formed part of the broader fiscal debate during the hearing.

 

The petition has been filed through Advocate T Harish Kumar.