Power populism

States should resist the temptation to hand out free electricity

In India, the ultimate accolade for any policy is to be seen as being instrumental to an electoral success. The re-election of Delhi’s Aam Aadmi Party would have highlighted to politicians around the country, particularly at the state level, the usefulness of the party’s signature policy of subsidised power. In Delhi, power up to 200 units every month is free for households and up to 400 units is subsidised by 50 per cent. Already some other states have jumped on to the power subsidy bandwagon. After taking control of the Maharashtra power ministry in December, state Energy Minister Nitin Raut said he had launched a feasibility study into free electricity for consumers who use up to 100 units, though he was at pains to say that there might “not be too many consumers”. Meanwhile, in West Bengal — where tightly contested Assembly elections are due next year — this year’s state Budget was replete with giveaways. Headlining these was a plan budgeted at Rs 200 crore to hand out subsidies for power consumption up to 75 units every quarter for households. 

These schemes even at the proposed level are less ambitious than Delhi’s, but they are nevertheless a harbinger of trouble. One of the achievements of the past decade has been the understanding that consumers are willing to pay for electricity in return for reliable supply. The troubles of the power sector are now an intermediation problem — consumers are willing to pay, and there is enough power being generated, policy-makers just need to connect one to the other. The drift back towards the day of politically motivated power subsidies threatens to undermine these hard won gains, and further delay — if not make impossible — reform of the power transmission sector. State electricity boards owe over Rs 80,000 crore to power producers. 

In addition, there are multiple other calls on state government purses that should be given priority by responsible governments. Healthcare and primary schooling lead that list. Power subsidy promises are eye-catching and might make for good campaign slogans. But there is no real political uniqueness to such subsidies — if one party promises free power up to 100 units, its opposition can always promise free power up to 200 units. Thus, populism of this sort always becomes a competitive race to the bottom, with no party retaining an advantage for long. When compared to the harder work of building a productive workforce and checking the spilling state populations, giveaways of this sort are a waste of public money. 

It is also relevant to note that even in Delhi there could be better uses found for the money that goes into free power. Increasing pressure on public transport and infrastructure in the capital means that government needs to spend a lot in these areas. One reason Delhi is able to offer free power is that the national capital’s privatised power distribution network has largely reduced transmission and distribution losses, so there is very little leakage.  The city-state’s finances are also more stable than those of debt-ridden West Bengal, for example. Thus, the giveaways which have not burdened Delhi to a large extent might have severe fiscal consequences elsewhere — alongside being more inefficient. This slide towards power populism must be corrected.