Saturday, Nov 01, 2014

For the middle class only

Posted: January 27, 2014 12:25 am | Updated: January 27, 2014 9:14 am

arvindk-main

Like the free water quota, AAP’s power tariff cut will benefit those who do not need it.

The AAP government has been quick, perhaps too quick, to announce a 50 per cent reduction in power tariffs for those who consume less than 400 kWh per month of electricity. This is very generous, and it is expected that 2.8 million consumers out of Delhi’s 3.4 million will benefit. What kind of consumption can 400 kwh/ month support? Electricity consumption varies from summer to winter. The table shows that a consumer with four light points, two ceiling fans, a refrigerator, a colour TV, a room heater, a cooler and electric geyser will need around 210 kWh in a winter month, and 180 kWh in a summer month. Only when a household owns an air conditioner will it use 400 kWh/ month in the summer. A household with these appliances is not likely to be poor. Among the poorest 10 per cent urban consumers in Delhi, 76 per cent had a TV, 93 per cent an electric fan, 25 per cent a refrigerator and 26 per cent a cooler. Among the bottom 30 per cent of the consumers, 83 per cent had a TV, 95 per cent had a fan, 45 per cent a refrigerator and 40 per cent had a cooler. Thus, 200 units per month are adequate for the bottom 30 per cent of the consumers.

Among the bottom 30 per cent of the households, AC owners are exceptional. Thus the power subsidy is targeted at not just the poor but also the aspirational middle class. Many do not require the subsidy. Such a generous limit means there will be little incentive for the middle class to use electricity frugally. Subsidies can be justified for merit goods that the society wants everyone to consume. In India, the policy announced by the ministry of power in 2006 considers 30 kWh per household per month as merit consumption. This is the bare minimum. The socially acceptable minimum standard of living improves as a society becomes richer. Since Delhi is a comparatively rich state and has a comparatively severe winter, 200 kWh may be justified. But subsidy for 400 kWh is difficult to defend.

Does the lower price imply a subsidy? One can argue that reduction in price does not constitute a subsidy; it merely takes away undue profits from the distribution companies who are overcharging consumers. The proposed audit of power distribution companies (discoms) by the CAG should show if this is so. The Delhi Electricity Regulatory Commission (DERC), if it had done its job well, should have looked into the costs of supply, which would mean the CAG audit is unlikely to reveal substantial deviations. In any case, it would have been prudent to wait until the audit is done. Yet one can be reasonably certain that the new tariff rate of

Rs 1.95 for up to 200 units, or even Rs 2.90 for up to 400 continued…

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