Thursday, 05 Dec, 2024
The Punjab government has tentatively set aside Rs 1,800 crore for the current financial year for the free electricity scheme
On June 27, the Aam Aadmi Party government led by chief minister Bhagwant Mann in Punjab presented its first Budget. One key decision was to not impose any fresh taxes on any goods and services. The second was the fulfilment of a commitment made by the party during election campaigns earlier this year. All households in the state will now enjoy free electricity up to 300 units per month. This is similar to what AAP has done in Delhi where it provides free electricity up to 200 units per month. The Punjab government has tentatively set aside Rs 1,800 crore for the current financial year for the free electricity scheme that comes into effect on July 1, 2022. It is difficult to estimate whether Rs 1800 crore estimate is correct or not. The average resident of Punjab will
definitely welcome this decision. After all, who doesn’t like a freebie?
But the question that many analysts ask is: Is free electricity sustainable? A previous story posted in IndiaTracker has already pointed out how Punjab is one of the few states flagged as staring at a fiscal crisis in a recent report Reserve Bank of India. Let’s leave that aside and focus on electricity. One hint that free electricity strains the finances even of a resource rich state came from the AAP government in Delhi. It announced that residents of the city state will have specifically ask for the free 200 units. While it is a voluntary scheme, it shows how even a government like Delhi that is awash in taxes finds it difficult to sustain free electricity.
This move also comes at a time when power distribution utilities of almost every state in the country face an acute financial crisis. Many years ago, the NDA government had launched the UDAY scheme to offer one time relief to state utilities and help them become financially viable. That has not happened. As one of the charts accompanying the story shows, the accumulated loses of state utilities have kept on rising. Poor data management and record keeping means analysts often don’t have access to the latest figures. So the data shown in the chart is up to 2020. But anecdotal evidence suggests that things haven’t really improved in the last two years. In fact, many states in India during this summer have faced repeated load shedding and power cuts as power generating companies have threatened to stop supply if unpaid dues are not cleared by the state utilities. But the utilities simply don’t have the money.
The other chart shows how despite all the schemes and all efforts to reform the power sector, the basic problem remains the gap between cost and revenue. The data is available till 2020. According to it, while the cost of selling one unit of power was Rs 6.15, the revenue was Rs 5.90. In effect, state utilities are already losing money on every unit of electricity sold. Its not difficult to imagine how the losses would balloon when states start offering 300 units of free electricity. Someone, sonnet or later, has to foot the bill.
