Electrifying solution

Direct benefits transfer is a more efficient way to deliver services to weaker and targeted sections of the community. With physical goods such as grains, kerosene or petrol, it means that the Government announces a subsidised quantum of the good and transfers the equivalent price to the consumers’ bank account. The consumer can at his discretion spend the money on other items as well.

Can this method be used in delivering services such as electricity? Services such as electricity pose different and difficult problems. They are delivered directly to the user on connected distribution wires. Quantity used can be measured only through meters.

But the transfer money can be spent only on electricity. For some years now State governments have been supplying power to consumers in agriculture. They are supplied in most cases free of cost, or well below cost. No limit is placed on the quantity so supplied.

In almost all cases, there is no measure of how much is supplied to each user. Some States also offer special prices to other select groups. Rarely are the distribution companies reimbursed by governments that ask distribution companies to supply free or below cost electricity to some consumers.

Assuming that the distribution company is collecting all its dues from other consumers, it has to undertake some cumbersome accounting to match its sales below cost with sales to others above cost; what is called a cross-subsidy. But the company does not incur any other cost except for what it has given away free or below cost. The State government is to reimburse the below cost amounts to the companies.

But that rarely is the case with most State governments. The outflow of distribution companies on subsidies is greater than what gain through charges from well off customers and reimbursement from State governments. What is worse is that free power to agriculture is accompanied by leakage and thefts.

Further, almost all these States have stopped metering this free usage to agriculture. This of course makes concealment of theft and leakage so much easer. With state ownership of most distribution companies there is little discipline among employees who collude in thefts.

The problem is compounded by managers who are not there as career professionals. They are mostly bureaucrats with short assignments.

Direct benefit transfers to subsidised consumers will help: avoid losses to distribution companies, power theft and diversion since the same amount is transferred to each user, meaning a stipulated and not unlimited quantity of power; there will be no complicated cross-subsidy accounting, since consumption cannot exceed the subsidised quantity.

If direct benefit transfer of electricity is to work, all users must be correctly metered. A price has to be declared from time to time. A subsidised quantity must be announced for each household. Bank transfers should be quick.

States will then directly bear the cost of power subsidies. The UDAY scheme now converts some distribution company debts into State government deficits. The direct transfer of cash for electricity supplied will add to this. Hopefully, this will impel States to encourage regulators into charging tariffs closer to costs, making discomsbetter equipped to invest in maintenance and new equipment.

The writer is former director general of NCAER

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