No rationale behind Delhi's inane opt-in power subsidy model

Starting this month, residents of Delhi receive forms with their power bills that require them to opt-in to continue receiving electricity subsidies. Domestic consumers who don’t submit their forms on or before September 30 will not receive subsidies from October.

However, those who don’t opt-in initially can change their minds and do it whenever they like, which is why the bills will be accompanied by an opt-in form as a permanent feature. It seems the reverse is not possible – those who have boarded the bandwagon by explicitly requesting the subsidy cannot possibly deboard it.

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Since 2015, Delhi’s domestic power consumers have been receiving subsidies in two brackets. First, those who use up to 200 units of power a month are given a 100 per cent waiver. Second, consumers who use 201-400 units get a flat subsidy of ₹800. On an average, around 90 per cent, or 30,39,766 of Delhi’s 58,18,231 power consumers get zero bills every month, and 16,59,976 get the flat ₹800 subsidy.

Two subsidy categories 

The Delhi government provides power subsidies to five categories of consumers — domestic consumers (4.69 million), anti-Sikh riot victims (758 consumers), agricultural consumers (10,676), and lawyers (4,899) whose chambers are within the court complex. The subsidised connections total to 47,16,075 consumers across all categories.

The government’s expenditure on the power subsidy scheme has increased by 125.26 per cent from its first year in 2015-16 till 2022-23. The amount of subsidy released in the first year (2015-16) of the AAP government was ₹1,442.76 crore, which increased to  ₹2,939.99 crore in 2020-21. For 2022-23, the government allocated about ₹3,250 crore for power subsidies.

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On May 5, Chief Minister Arvind Kejriwal explained the rationale for the tweak in the AAP worldview of subsidies – many well-heeled Delhiites offered to give up their power subsidies so that the government could sublimate the resultant savings for those at the bottom of the economic pyramid. This begs the question – why the rigmarole of opt-in then?

One of the key principles of management is management by exception. The exception is going to be opt-out with a vast number of consumers likely to cling on to the subsidy.  The administrative burden could have been considerably reduced by pitching for the opt-out model. Be that as it may, the tweak is a tacit, reluctant admission that the free-for-all or universal subsidy model was misguided. There is another straw in the wind – if push comes to shove, AAP might take the harsher step of wrenching away the subsidy from the well-heeled.

Punjab model

The Kejriwal model of free electricity has been extended to the other state his party rules – Punjab – where domestic consumers get 300 units per month for free. Punjab was the first state to give free electricity to farmers and that practice continues. The Gujarat electorate has already been told that the Punjab model would be followed if it comes to power in that state. Will the inane opt-in anytime scheme obtainable in Delhi be the template in other states as well where the AAP hopes to extend its footprints?

The AAP model is a classic example of non-merit or untargeted or freewheeling subsidy. That lawyers, of all the people, also get the subsidy for their chamber electricity consumption in addition to their domestic consumption talks volumes about the nature of the subsidy. Why not clinics then? The truth is subsidies must be targeted at the needy and not freewheeling.

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Under the Prime Minister Awas Yojana (PMAY), only the economically weaker sections get free houses and those in the LIG (low-income group) segment get only interest subventions. This is as it should be.

Unfair practice

Why should the residents of Golf Links and Jor Bagh in Lutyens Delhi, the upmarket centres of opulence, be cosseted with free power? It is another matter that they normally are likely to cross the 400 unit a month danger mark given their irresistible penchant for creature comforts but that is not the point. The point is that universal subsidies are unsustainable and a waste of precious and scarce resources.

While the limit of 200 units for complete waiver in Delhi makes one niggardly, and a careful user of power-guzzling gadgets, Punjab’s free agricultural power is often cited as a warning in splurging on the back of limitless waiver. Water gushing with gay abandon from tube wells in rural Punjab is a common sight and a grim warning on what people do when they are given freebies without let or hindrance.

Indian Railways paid a heavy price for cross-subsidising passengers with freight, leading to trucks becoming the preferred mode of ferrying goods with their attendant fuel-guzzling and pollution problems. The AAP model could rub the industrial customers on the wrong side. While in Delhi there are no industries worth the name, Punjab and Gujarat are different kettles of fish. Would AAP blunder along the Indian Railways’ lines by cross-subsidising domestic consumers by steeply hiking industrial user charges?

AAP, keen on expanding its footprint, is likely to persist with its inane Delhi model – knowing full well that the opt-in box, in all probability would be ticked or clicked with alacrity as well as with foresight i.e., to hedge one’s bets. Hemming and hawing is its deliberate ploy.

(The writer is a CA by qualification, and writes on business, consumer issues and fiscal laws)

(The Federal seeks to present views and opinions from all sides of the spectrum. The information, ideas or opinions in the articles are of the author and do not necessarily reflect the views of The Federal)