Stating that suppressing of energy prices would not help, the Planning Commission has suggested increasing electricity tariffs while providing targeted subsidy for poor people.
"...Electricity tariffs are lower than they should be for many categories of consumers over [and] above that of agriculture, which jeopardises the financial position of the discoms.
"A transition to more rational energy pricing requires upward adjustment in all these prices," according to the Approach Paper for the 12th Five-Year Plan (2012-17).
Noting that electricity to the consumer is underpriced, the Approach Paper pointed out that most state regulators have shown a tendency to hold back tariff adjustments, typically under political pressure.
"Suppressing energy prices will not help. There is a case for insulating the poor from these prices increases by a targeted subsidy but what we have at present is a much more general subsidy," it pointed out.
Most of the power distribution companies (discoms) in the country are in poor financial health, especially as they are adversely impacted by a mismatch between power tariffs and cost incurred in generating electricity.
Losses incurred by discoms are estimated to have touched about Rs 70,000 crore in 2010-11. These losses are projected to further rise to as much as Rs 1,16,000 crore by 2014-15.
As per the Approach Paper, increasing prices is never easy, but also true that "our ability to grow rapidly in a world of high energy prices depends crucially on our ability to adjust to these prices".
In July, the Reserve Bank of India (RBI) had said that given the increases in coal and mineral oils prices, power tariffs are likely to rise in the near-term.
Stressing that utility prices, especially electricity, may need to be revised up to cover costs, the central bank had said this and other factors could become a source of "likely price pressures during the course of the year".
The country saw a power shortage of 8.5% in 2010-11, which is estimated to further rise to 10.3% this fiscal.
