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Friday, Jun 04, 2004

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Power of populism

COMPETITION, BY COMMON wisdom, benefits consumers. It offers choice and, more important, pushes down prices. Competitive populism goes a step further. It does not offer consumers a choice, but definitely pushes down prices. That too when the consumers least expect such a bonanza. That is what power consumers in Tamil Nadu realised as the Jayalalithaa administration reduced tariffs for domestic connections. Domestic power consumers — the voiceless majority — were pleasantly surprised when the Tamil Nadu Chief Minister, Ms Jayalalithaa, announced a major tariff reduction — by 35 paise to Rs 1.70 a unit depending on the slab, that translates into a drop of 31.8 per cent to 42.3 per cent. What the tariff reduction really means is that domestic consumers will be charged the same rates levied from January 7, 2000, when the then DMK Government increased tariffs for all categories of consumers.

Still smarting under the recent electoral debacle, Ms Jayalalithaa has announced a number of populist measures perhaps in the hope that the electorate will back her when she faces them next, in the May 2006 Assembly elections. But she may have opened the Pandora's box, as her latest move will only raise more such demands. Already, there is a clamour for reduction in tariffs from other categories of consumers, notably small and medium industries. Worse, such offering of largesse could spread to other States with Chief Ministers wanting to follow what Ms Jayalalithaa and her Andhra Pradesh counterpart, Dr Y. S. Rajasekhara Reddy, have done. Dr Rajasekhara Reddy, immediately after being sworn in Chief Minister, announced free power for farmers, a major poll promise of his party.

The country's power sector managers will surely be alarmed — rightly so — at these developments, especially since the last three-four years have seen concerted action to restore the health of the sector. Solutions to such long-standing problems as the mounting dues of State electricity boards to Central power utilities, the bankruptcy of the SEBs and the inability of State governments to bail out their power utilities have been found. Almost all the States were grudgingly reconciled to the need to bridge the yawning gap between the cost of generation and the average realisation. The much-debated Electricity Bill had finally become an Act after getting approval from both Houses of Parliament. Now there is a demand from some sections of the ruling alliance at the Centre to review this Act.

All this definitely does not augur well for the power sector. One, it makes a mockery of the regulatory mechanism that has been put in place in the States. Two, prices going down as a result of reforms — thanks to more competition, use of better technology and cheaper fuels, and increased efficiencies — is one thing. But a reduction in tariffs for political expediency is quite another. What is the guarantee that the next increase will not be steeper than before? It is always better for consumers if prices go down because of genuine competition rather than due to competitive populism.

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