This government has been quite proactive in the area of power reforms. But despite the measures taken, the sector continues to flicker. Among many reasons for this is the “social behaviour” where electricity supply is seen as a right.

Why should those who can afford to pay get electricity cheap? More importantly, can the system of direct benefit transfer (DBT) be used to ensure that the benefits go to those who need it the most?

Research at the University of Chicago and partner institutes on “The Consequences of Treating Electricity as a Right” states that “More than a billion people worldwide lack access to reliable electricity, despite multilateral efforts across the globe that have poured resources into improving electricity access and reliability in order to spur economic growth.”

It suggests that the root of the problem may lie in the fact that society too often views electricity as a right that does not need to be paid for.

This actually would be music to the Power Ministry’s ears, which has been grappling with the many issues afflicting this sector, while trying to make it more consumer-centric. The proposed amendments to the Electricity Act, 2003, in the form of draft Electricity (Amendment) Bill, 2020, had the following broad objectives: Ensure consumer-centricity, promote ease of doing business, enhance sustainability of the power sector, and promote green power. The proposal has been discussed at various public platforms.

So what is the way out?

According to Michael Greenstone, the Milton Friedman Distinguished Service Professor in Economics and Director of the Energy Policy Institute at the University of Chicago (EPIC), and his co-authors, Robin Burgess (London School of Economics & Political Science), Nicholas Ryan (Yale University), and Anant Sudarshan (UChicago), of the paper, “It is critical to provide lifeline electricity to the poorest, but doing so in a way that causes electricity markets to fail harms everyone. Our view is that no solution will work in the end, unless the social norm that electricity is a right is replaced with the norm that it is a regular product that people pay for, just like food, cell phones, etc.”

They offer three changes to the current system: Changing social norms, subsidy reform and improved technology.

Subsidy is a sensitive subject in India. The research paper suggests that “since consumers of all incomes often enjoy electricity subsidies, subsidies are frequently regressive and poorly targeted. Removing these subsidies and supporting the poor through direct transfers will allow them to pay for power without distorting the electricity market.”

Sudarshan said, “In the electricity sector, we see that it is not purely a subsidy story, but what we see is that those consuming a lot are also enjoying the benefits. So, it is not purely a story about poor people who are charged very little and not paying. Yes, their (poor people) number is substantial, but we see a cumulatively large amount of losses coming from people who consume a lot and are still not paying them. In the paper we have suggested a mechanism, by which you could target assistance and at the same time enforce payments. This is, by using DBT, as it can delink the payment regime from the subsidy assistance that you may want to give to the actual beneficiaries.”

In fact, a similar suggestion in the proposed new Electricity Act is seeing strong opposition from the protesting farmers.

It proposes handing out a certain amount of money to farmers in view of agriculture electricity consumption. They may choose to use that money to buy electricity or use it otherwise, but they have to pay the Discoms.

Minister of Power (Independent Charge) RK Singh had to clarify “... Nowhere has it been written that free power currently available to farmers will be taken away. Why should there be any agitation when no such thing is even contemplated.”

In fact, on June 25, Singh, when talking about bringing change in the sector through the proposed Electricity (Amendment) Bill 2020, had clarified on the misconception that the DBT is against the interest of the consumers.

He had said, “…the proposed provision for introducing the system of DBT for subsidies is inimical to the interest of the consumers especially the farmers. It has been argued that if the State Government is not able to pay the subsidies on time, the electricity supply to the consumers may get disconnected. This is baseless.

As per Section 65, of the Electricity Act, 2003, the State Government is required to pay the amount of subsidy in advance to the distribution companies. The subsidy is now being proposed to be given into the account of the consumers maintained by the distribution companies through DBT”.

“It is being provided in the new Tariff Policy that the electricity supply shall not be discontinued even if the State Government is unable to pay the subsidy in time or even if the State Government fails to pay the subsidy for 3-4 months.

“Therefore, the consumer’s interest will be duly protected. It is, of course, expected that the State Government pay the subsidy in advance to the Discom/consumers as provided for in the law.

It may be noted that the DBT will be beneficial for both the State Governments and as well as distribution companies,” he had pointed out.

He had emphasised that proposed power reforms are aimed at introducing transparency and accountability to protect the interest of consumers and ensuring healthy growth of the sector. He had also said that there are no restrictions on States for providing subsidy as long as they pay it upfront through DBT. This is to ensure that Discoms remain healthy and maintain and improve distribution infrastructure like transformers and distribution lines, pay for power purchased and are able to provide quality electricity to the people.

DBT benefits

This system will be beneficial for the State governments because it will ensure that the subsidy reaches the people who are actually entitled and the State governments get clear accounts of the amount given as subsidy. It will benefit the distribution company by making sure that the subsidies due are received as per the number of beneficiaries.

But the real challenge lies in not using it as a political agenda, while bringing in social reforms.