BackA powerless electricity board in Rajasthan
Political fears are responsible for bankrupting electricity utilities in India
Premium
As in much else, residents in New Delhi are pampered consumers of electricity. Except in the dead of summer, when demand far outpaces supply, they are probably the best-provided lot in the country. Things are only likely to get better for them: as reported in this newspaper, the Delhi Electricity Regulatory Commission (DERC) is unlikely to let distribution companies in the Capital increase tariffs. The discoms had asked for a 20% increase in tariffs.
At one time, they used to think that way in Rajasthan. For almost half a decade, consumers in Rajasthan, too, had a good time. Instead, today they don’t have electricity. The state electricity board (SEB) is almost belly up and is seeking a restructuring of ₹ 55,000 crore in debt. This will be the second time in two years the SEB has sought such a restructuring: in 2013, ₹ 38,000 crore of debt was restructured. The numbers from Rajasthan are breathtaking. At the end of 31 March this year, the outstanding debt stood at a whopping ₹ 1 trillion. Forget the state government, this kind of debt is sufficient to sink a couple of banks.
Admittedly, Rajasthan is an extreme example, but almost all SEBs in India are in the same boat. What is happening in Delhi today—under the pernicious influence of the state government—has been seen in many Indian states. In Rajasthan, for example, the absence of regular tariff increases led to an accumulation of money owed by consumers to discoms. In 2014-15, this figure stood at ₹ 12,500 crore. Commercial operations are not viable when such heavy bills remain unpaid.
This year in February, the Bharatiya Janata Party (BJP) government in the state increased power tariffs by almost 17%. But this increase may be too late for the SEB. The outstanding loans, the interest burden and the cost of running a hobbled establishment will prove to be too much. Where Rajasthan finds itself today, Delhi may end up tomorrow. In fact, this is the story of almost all SEBs in the country.
These facts are well-known and have been observed in state after state. What needs explaining are the political fears behind letting tariffs adjust the demand and supply of electricity.
One clue lies in the pattern of consumption of electricity in the country from Independence until the present time. At the end of 1947, industries were the biggest consumers, accounting for 71% of the consumption. The figure for domestic (household) use was a mere 10%. Agriculture was truly monsoon-dependent and its share was a paltry 3% in the overall figure. By 2012-13, this pattern had seen a sea change: domestic consumption stood at 22% of the total, while industrial consumption witnessed a massive fall from 71% to 45%. The share of agriculture rose to 18%. The obvious changes are: a massive increase in the number of consumers in this time and the sea change in the consumption pattern.
Because of the large number of these consumers—most receiving electricity far below rates that are economically feasible—politicians fear that any increase in tariffs will lead to political disturbance and an outcry. This reasoning is bereft of any economic logic. Unlike other normal goods, the demand for electricity is inelastic to price changes. One simply does not stop consuming power merely because it has become more expensive. All that will happen is rationalization of use or lowering of demand at the end of households (unlike what is happening now when SEBs are not buying power from generation companies). This elementary fact eludes elected leaders.
There is plenty of evidence—accumulated over decades—that increases in the price of electricity do not have adverse political consequences. Prices of government-controlled and -supplied goods in the past—fuels, electricity, etc.—are raised only when government enterprises are about to go red. This was the essence of the administered price mechanism. There are virtually no instances of public protest let alone electoral defeat because prices were raised. Consumers, in contrast with politicians, have a better sense of costs and prices.
This elementary fact eludes our political class and is the single most important reason for interference and destruction of distribution utilities. Rajasthan is the most egregious example, but the malaise is widespread.
Should power tariffs be subject to political determination? Tell us at views@livemint.com
Unlock a world of Benefits! From insightful newsletters to real-time stock tracking, breaking news and a personalized newsfeed – it's all here, just a click away! Login Now!
