New Delhi: Direct subsidy on electricity rates by state governments has increased by 32 percent since FY 2016 and has increased to Rs 110,391 crore ($ 15 billion) in FY 2019. This shows that the reforms in power distribution companies (discoms) have not yielded any significant results. This fact has been revealed in a recent report on ‘Unpacking India’s Electricity Subsidies’.
As per the estimates made in the report, in order to compensate the loss due to electricity supply to some consumers at less than the cost, under ‘Cross subsidies’ to provide electricity at a higher rate to some consumers at least in FY 2019 An additional Rs 75027 crore was spent. This reduced the total expenditure on subsidy to Rs 185418 crore ($ 25.2 billion).
The increasing subsidy on electricity is a sign that the power distribution companies (discoms) are underperforming in terms of Ujwal Discom Assurance Yojana (UDAY). Uday is a bailout scheme run by the central government, under which discoms are expected to improve their financial performance in the year 2019.
According to studies by the International Institute for Sustainable Development (IISD) and the Council on Energy Environment and Water (CPW), 25 out of 31 states in India have failed to reduce their total technical and financial losses to 15% under the UDAY scheme. Apart from this, sales revenue of all power distribution companies has also fallen by 3% since the financial year 2016, while revenue gap was also found in 24 of 31 states in the year 2019. None of the 26 states and union territories subsidizing electricity could follow the rules of the National Tariff Policy in terms of subsidy on electricity rates. Experts believe this is a vicious cycle. Poor financial performance leads to increased dependence on power subsidies, and poor estimation of subsidies makes the financial system worse.
“This is a serious problem,” said Prateek Aggarwal, a program associate at the Council on Energy Environment and Water. Even if discoms cannot recover their costs, consumers will have to pay for it from other routes. In India we get poor reliability and quality of electricity. “
The researchers examined the design of electricity subsidies in various states and union territories of India to better understand these challenges. He found that at the national level 75% of government-backed electricity is provided to agricultural consumers.
Prateek Agarwal said, “While this is important in helping the farmers, giving a large portion of the total subsidy to the farmers is not a leniency, but a malfunction in the level of efficiency.” Most states, especially low-income farmers, do not aim to benefit and the general state of unmetered electricity consumption in rural areas means that no upper limit of subsidized consumption has been fixed. “
He said, “In a state like Uttar Pradesh, about 1.5 percent of the total revenue is spent on billing and collections. There is tremendous pressure on the bill payers. Government is not able to deal with these flaws. A lot depends on it. “
Prateek said that the demand reached an all-time low during the Kovid period, worsening the condition of discoms. To overcome this, they have to focus on the tariff structure. In UP, there is a lot of difference between fixes and variable charges. This needs to be overcome. The government will have to bring consistency in the value chain.
In this report, design-related problems of subsidies to domestic consumers have also been identified. In most states, subsidies to domestic consumers are uncapped and increasing consumption can have disastrous effects on DISCOM’s financial viability.
The report also found that there is scope for further improvement in the level of transparency in subsidies. The report states that only 15 states and union territories clearly disclose their subsidy data.
The report recommends the Forum of Ministry of Power, State Governments, DISCOMs, State and Central Electricity Regulatory Commissions and Regulators to work together to improve data reporting and help policy makers. In addition to the uniform format of data reporting in the report, to ensure transparency in consumers’ electricity bills and late fees in subsidy distribution, to ensure timely release of regulatory orders and data reports and for better subsidy targeting Recommendations have also been made for improving the data related to subsidy distribution.
Anjali Vishwamohanan, a consultant at the International Institute for Sustainable Development, said, “In most cases it is impossible to gauge the effectiveness of various central government schemes due to the lack of proper arrangements to disclose information on the allocation of subsidies.”
Experts believe that the situation will worsen as the power distribution companies are engaged in dealing with the additional losses caused by Kovid-19.
Anjali said, “Both hike in electricity rates and financial bailout options are limited.