election gimmick or not AAP’s electric subsidy has brought relief to many consumers, especially lower income groups. But at what cost to its budget? A Patriot audit
As winter sets in, zero bills have been delivered to the houses of those who consumed less than 200 units in November. In the months ahead, Delhi Chief Minister Arvind Kejriwal claims 70% of households will have a reason to cheer his innovative measure.
It seems the ‘freebie’ which faces flak from the opposition is really not a burden on the exchequer. In its annual budget, the Delhi government allocated 3.3% of its total expenditure to energy, lower than the average allocation by other states, which is at 5.2%. At the same time, it allocates 27.8% of its expenditure on education and 13.8% on health.
There were two big announcements in CM Arvind Kejriwal’s term to do with electricity. One was in 2015 when it announced a 50% slash in power tariff of consumption up to 400 units a month. Those consuming over 400 units would enjoy no subsidy.
In 2019, it went a step further and said that those who consume up to 200 units of electricity would get a zero bill. Those consuming 201-400 units of electricity would receive the 50% subsidy as earlier.
According to data we were shared, 2019-20 is seeing over 47 lakh number of consumers pan Delhi, availing the subsidy. In 2018-19 this was over 46 lakh, in 2017-18 there were over 41 lakh consumers benefitiaries, and the year before that 39 lakh.
While Delhi’s opposition parties — the BJP and Congress — have both criticised the Aam Aadmi Party’s action as an election gimmick, most of the people Patriot interviewed could not care less if it was indeed so — unless they were benefitting
But there is a down side too. Subsidised power is one of the reasons cited for growing demand for electricity. This year, power demand in July touched an all-time high of 7,409 megawatt. Before this, in 2018 the demand high was 7016, 6526 MW in 2017. In July 2016, the peak was at 6261 MW, while the previous year June 2015 had seen peak demand at 5846 MW. So demand has consistently been growing, even as temperatures are rising and more air-conditioners are being used.
In this year’s budget, i.e. 2019-20, the AAP-led government allocated Rs 1,790 crore to the energy sector, out of which the major chunk, Rs 1,720 crore is allocated for providing subsidies to consumers through discoms.
In the budget years of 2018-19, the revised allocation to energy was Rs 1,759 crore while in the years 2017-18 it was lower at Rs 1,697 crore.
In a paper for Brooking India, titled ‘Delhi’s Household Electricity Subsidies: Highly Generous but Inefficient?’, Rahul Tongia took into account the year 2016 and wrote, “The design of the subsidies turns out to be regressive, helping larger consumers, who are likely richer, more than lower consumers, and costs taxpayers over 6% of the state Non-Plan Budget.”
It instead suggested lowering the threshold of maximum monthly consumption to be eligible for the subsidy from 400-300 units per month, which would “result in almost 30% taxpayer savings while reducing coverage by only about 13%. Going to 200 units a month still covers over half the population (compared to 80% today) but can save two-thirds or about Rs 1,000 crore per year.”
Economist Amiya Kumar Bagchi asks if AAP’s move for “cheap or free electricity is a ruse to garner votes”, then “what is wrong with it?”. The Emeritus Professor at Institute of Development Studies Kolkata instead points out that with a multi-party democracy, all parties are competing for votes thus, “I would much prefer cheaper electricity or state schools to erecting yet more temples, gigantic statues and building goshalas (rather healthcare centres for humans) as a vote-gathering strategy”, he tells Patriot.
But even economists think differently. While Prof Bagchi says that he approves “on the whole” of Delhi government’s policies, Prof. Sudhir A Shah, HoD at Department of Economics at Delhi School of Economics does not think AAP’s idea is a good welfare scheme.
Instead, he says, “If you want to help them (the people) give them the purchasing power to do it” … “Give money in their bank accounts and let them decide how to spend it. I either want to spend it on electricity or something or water or for travelling on buses …that should be decided not by the government but by the individual”.
While he points out that it is the “prerogative of any government to give subsidies to whomever they wish,” calling it a political decision, economists cannot dispute it. “What economists can dispute is whether that kind of subsidy is the best instrument”.
And in this case, he answers with a straight No to questions of whether this scheme is the right one. “One of the most important things you are taught as an economist is that if you want to give a subsidy, don’t give on particular items but give income subsidies or income transfers”, so in his opinion what would be a “more efficient way” would be to give a lump sum income transfer.
On the ground
We went to Sangam Vihar, Geeta Colony, and Najafgarh, areas with working class people, who would be in AAP’s terms, a population they would want to help with its scheme.
Walking back home from Geeta Colony to the area adjacent, called Rani Garden, we met Turshila. Working as a helper in five homes; cleaning their houses, utensils, she says this scheme has not helped her. “Har cheez mein mehengayi hain. Toh isko kum karne sey mera koi faida nahi hain” (Every commodity is expensive. Reducing the cost of electricity is not helping me) Turshila says, being a perfect example of the point that Prof Shah makes. That is, she would probably prefer income transfer which would directly put cash in her bank account.
The reason she does not benefit from this scheme is that as a person living in a rented accommodation, she gives a fixed amount to her landlord for electricity. “My rent is Rs 2,500 plus with Rs 500 for electricity,” says the only earning member in the family of three.
She has obviously not opted for the scheme CM Kejriwal announced in September, the Mukhyamantri Kirayedaar Bijli Meter Yojna. Under this, installation of a prepaid meter for Rs 3,000 would ensure 200 units of free power.
For this meter, a rent agreement and rent receipt will be needed for installation, but tenants will not require any No Objection Certificate (NOC) from their landlords. However, annoying their landlords is still something most would not do. This, a few women we met at Najafgarh told us was the case with them and many others they knew who lived as tenants.
Kejriwal, though, claims that the scheme would cover at least 33% consumers whose usage is less than 200 units in summer. “During winter, the power consumption of around 70% people is below 200,” he said. Meaning, he aimed to positively affect majority of the residents and their pockets.
“Nobody says anything if the VIPs and big politicians get free power. Why deprive the common man? Am I wrong in taking this step?” Kejriwal had asked while announcing the scheme. Later, perhaps to make it a matter of more than just freebies, he tweeted that the free electricity scheme would be an example of “smart governance”, as families would try to consume less than 200 units, thereby saving electricity.
If we look past the energy demand and supposed ill-effects (if any) of subsidies, does the subsidy in fact help the poorer sections? Prof Bagchi, while supporting AAP’s scheme, calls it a “great boon” for the poor.
He does point out that the “only question” would be, “whether the money could be better spent to help the poor. As far as I know the Delhi government has been able to bring back students of the poorer families to state schools. The only other area where money can be well spent is for public health centres.”
Critics may still have something positive to say about electricity subsidies. But people like Sunder Lal, still think it’s not a good scheme, not because it helps the rich, but the poor.
Lal, a resident of Rani Garden says, “For some you are giving free (electricity), others reducing the cost so much and for the rest you are giving nothing. Instead it should be all the same. For everyone it should be a little less, not that for one the cost is high up and for others it’s nothing.”
Here too, Prof Shah’s belief that the subsidy distorts the price for various commodities, finds a live example in Lal. “Setting zero price for electricity, even if it’s for a certain amount for a certain unit, you are creating a distortion in the market, which is an inefficient thing to do,” says Shah, which we see here creates in some a perception of others getting an unfair advantage.
“My neighbour had 431 units and his bill came to Rs 1,100; mine was 462 units and my bill came to Rs 2,240”, Lal tells us, but also goes on to give some positive feedback for the AAP government. He says his bills are less than before, while not as much as he would like, and more importantly electricity doesn’t go off that often. “Under the Congress government, electricity would not come for eight hours some days and even with the BJP government, it was the same.”
Early focus on power
Soon after the present government came to power, it had ordered discoms to pay consumers compensation for power outages. Last year, the Delhi Electricity Regulatory Commission (DERC) issued the third amendment in Supply Code 2017 notifying the compensation policy in line with the directions issued by Delhi government under Section 108 of the Electricity Act 2003.
Previously, the consumers were paid at the rate of Rs 10 per KW per hour, maximum up to Rs 200, in case of different categories of interruptions in power supply.
According to the new regulation, the power consumers will be paid Rs 50 per hour for first two hours of unscheduled cut followed thereafter by Rs 100 per hour, it said.
Residents of Sangam Vihar have a point to make about uninterrupted electricity. Like Radha Bhatt, a homemaker who says it isn’t just lower electricity bills but she has also witnessed a change in the power supply. “Earlier our households depended on invertors. Electricity would always be gone but now it’s good”, under the new government she says.
Radha Mehta also points to such changes. “We moved here in 1986, back then there were no meters and electricity was stolen”. Now, they have four meters installed in her home with one giving her recently a bill of Rs 750, and the rest of zero amount.
Many homes in this unauthorised colony — among the 1,728 unauthorised colonies which the central government has approved for regularisation and for which it introduced a bill in the winter session — have a separate meter installed on different floors of their homes.
This is a tactic they have adopted to get lower bills, and now with electricity below 200 units becoming free, the scheme will give them a good advantage.
Jai Prakash and Mithilesh, who have called this area their home for decades, first say the subsidy has not helped them. Mithilesh starts speaking to us from the balcony of her second floor home, making her way down the stairs later after neighbours heckle her in jest over her high electricity bills.
“Only last month we paid a bill for Rs 2,350 whereas for some others it comes for free”, Mithilesh was complaining. Women sitting outside the stairs of their homes on an unpaved road say it’s because “Aunty uses AC. Of course it will be that much”.
But they have another point to raise. Apparently, when the subsidy had first been announced, their bill came to about Rs 500-600 for a couple of months but was now “back to normal”. At the same time, after a little thought, Mithilesh thinks her bill before this government used to come even higher, at Rs 4,000 or more.
Prakash adds — and his opinion is mimicked by the others in his neighbourhood — that the subsidy is not about rich or poor, but as simple as “if you consume a lot of power, you will have to pay for it. If you don’t, it will be less or free”.
Sop for voters
There are some, though, who approve the opposition questioning the timing of this freebie and even ask if the subsidy will be removed once the elections are over. Like Mohini Devi, who thinks that if and when AAP gets its second term, the subsidy would be removed. For now, she’s pleased with the fact that her bills have come down. “For one room, I paid a bill of Rs 1,200 while the other room has a zero bill. We are happy”,
Kannak Upadhyay’s family is one of those living here who got a zero amount as bill last month. “I have been living here for over 30 years, spent my childhood here…we are happy about the electricity and only that. Before 2015 our bill would come to about Rs 300, but back then we didn’t have a cooler. Now we do, but still got a zero bill as we had consumed only 86 units.”
And this subsidy was also availed by two brothers we met, further away in North East Delhi’s Geeta Colony. Madan Lal and Jagdish Daas, are retirees who enjoyed receiving zero amount as bill for electricity. Before this they would get a bill of Rs 500 on average, a month. “We have been living here for more than 70 years and this party has done a very good thing for us. Their scheme is good, and I can’t take out any fault in it”, says the 84-year-old Daas, with his younger brother 79-year-old Lal, adding in good measure some words supporting the present government of Delhi.
Both former gold traders say it has helped mostly everyone in the area they know.
How do others, not being able to avail the subsidy get positively affected? Well, there is the Delhi Electricity Regulatory Commission (DERC) which has kept the energy charges same for all categories, this year, except for those who consume more than 1,200 units per month. A household whose electricity consumption crosses 1,200 units a month will have to pay 25 paise extra per unit and will be charged Rs 8 per unit.
Furthermore, this year it was reported that the power sector in Delhi saw a steady decline in regulatory assets to Rs 8,377 crore over the last five years, which also allowed the government to keep tariffs in check.
Going back to the subsidies, some may point out that too much of the taxpayer money goes into paying for them, that too for someone else’s benefit. Once you look at the budget and its allocations over the years, you can see that education and health have remained the major focus of this government.
In actual numbers, the contribution to electricity in this year’s budget came from the total chunk of expenditure of Rs 60,000 crore. Out of this the ‘State’s Own Tax’ budgeted for this year was Rs 42,500 crores, making electricity a not-so-big chunk of its expenditure.
However, another essential like water supply and sanitation has a much lower allocation at 2.5% of the budget this year. Urban development got an allocation of 6.9% and roads and bridges an allocation of 4.6% from the total budget.
So, while residents, take for example from Sangam Vihar, are happy with the situation of electricity, they cannot ignore the state of their sanitation and water supply, which has a smaller allocation.
Presently, if we only speak in terms of electricity, in the localities we visited, inhabited with largely working-class persons, this scheme has been of benefit. Political parties, and especially the AAP in Delhi, has gone for schemes which they say are aimed for the poor and lower income groups, marking themselves as a socialist outfit.
Prof Shah, however, says it’s not socialism: “Get this word out of the way. We all pay homage to socialism, but socialism does not exist. You can call it populist, or whatever else but this is not socialist. If you (the government) have a certain amount of money to spend, then this is not the best way to do it.”