In his address from the ramparts of the historic Red Fort on August 15, 2015, prime minister, N Modi had declared that his government will provide electricity to all the 18,000 villages [all located in inaccessible and the most difficult part of India] – that remained unconnected even 68 years after independence.
Modi promised to complete this job within 1000 days. True to his commitment, the government accomplished the mission with the last of these villages in Leisang [Manipur] having got the electricity on April 28, 2018 nearly two weeks ahead of the target. A village is considered electrified if it has the basic electrical infrastructure and 10 percent of its households and public places including schools, local administrative offices and health centres have power.
However, the much bigger challenge of reaching electricity to about 40 million households in rural and urban areas lies ahead. Under the Pradhan Mantri Sahaj Bijli Har Ghar Yojana ‘Saubhagya’ launched in September 2017, the government had promised to give electricity connection [albeit free] to all the 40 million households by December 31, 2018. This is an uphill task that boils down to connecting 120 families per minute or 2 every second.
One is reminded of Modi’s reply to a question during an interactive session with Indian Diaspora recently during his visit to London. The query was as to how he would deal with a situation whereby the administrative machinery is unable to cope up with the speed sought by him for the intended deliverable. He quipped, this did not bother him as in such a situation, he would change the ‘strategy’. One wonders as to how this would help in the instant case!
Still, let us assume that the task gets completed within the set deadline. The ball does not stop here. The bigger question is about ensuring uninterrupted supply of electricity at affordable rates or even free as the households under reference are poor.
This raises serious issues about the financial viability of reaching power to a humongous 40 million poor households spread over in every nook and corner of the country free of charge. Even ignoring for a moment the heavy capital spend on laying infrastructure [poles, transformers, wires/cables etc] – deemed as one time subsidy from the union budget, how will the power distribution companies [PDCs]/state electricity boards [SEBs] who have to provide electricity on ground zero will recover the cost of procuring and wheeling it to the homes?
Unlike in sectors such as fertilizers wherein the union government directs manufacturers and importers to sell fertilizers to farmers at a low price unrelated to cost of production and distribution which is higher and reimburses the differential between the two as subsidy, for power, there is no such policy at the national level.
At the state level, even though the ruling political establishments invariably ask PDCs/SEBs to sell power at heavily subsidized tariff [or even free in some states] to vulnerable groups such as farmers and poor households, there is no explicit commitment by the former to reimburse the latter for the excess of the cost of supply over the revenue from such sales. Even the states which at the time of announcing sops promise to pay for the subsidized supply either do not reimburse and even when they do, this is after a huge time lag.
The net result of this reckless populism by state governments riding piggyback on SEBs/PDCs is increasing losses of the latter. This is despite their charging high tariff from industries and service establishments in a bid to cross-subsidize sale to farmers/households at low rates. The problem is exacerbated by high technical and commercial [T&C] losses – a sophisticated nomenclature for power theft.
Persisting losses for several years/decades have made these companies financially weak. Their problems have refused to go away despite the central government coming out with three financial restructuring packages [FRPs] viz. 2002/2012/2015 thus far in 2000s alone. This is because the states have not given up populism and their budgets do not have the capacity to pay for the subsidy. The T&D losses though reduced somewhat continue to be high.
The companies not in the pink of health and unable to satisfactorily serve their existing users cannot be expected to service an additional 40 million households. On top of that if, forced to supply electricity to them free, they will be completely crippled as their losses go beyond sustainable levels.
The government should therefore pull out all stops to make PDCs/SEBs financially viable and healthy. This will require withdrawal of all sorts of subsidies and restrict subsidy only to the poor farmers and poor households. These should be given directly in their bank account instead of routing through distribution companies. Power theft has to be tackled on a war footing to bring it down to zero immediately [within a year], instead of current gradual approach that would take several years to reach the goal. PDCs/SEBs should be given full autonomy to sign power purchase agreements [PPAs] and buy power from generators at competitive/lowest possible rates.
For the 40 million households covered under Saubhagya Yojna, the government should come out with a clear-cut policy statement in regard to giving them electricity free along with an undertaking that the money will come from the state budget. The funding pattern – whether entirely by centre or on sharing basis between centre and the states – has to be clearly specified. The mode of payment too i.e. directly into the account of household [preferably the woman head] needs to be spelt out.
In short, merely taking the wire to every household is not enough. The government should aim at putting in place robust arrangements to ensure that electricity actually reaches them 24×7 at affordable rates.