Power play, again

Punjab Chief Minister Amarinder Singh is feeding a “free power” frenzy. After announcing an ‘energy bonus’ scheme two weeks ago — which promised free power to small farmers — he has now decided to give free power to all the state’s farmers. The excuse for doing so is that it would be difficult to identify the small farmer. But the state should have known this well enough before it came up with its energy bonus scheme. This power bonanza means that the state will now have to provide an additional Rs 439 crore of subsidies. At present, due to the underpricing of power to agriculture, it is already coughing up a subsidy of Rs 1,100 crore. The reason why the Captain is prepared to sacrifice sound economic practices on the altar of political expediency is not far to seek: state elections are just 16 months away.

Prime Minister Manmohan Singh has, time and again, argued against such profligacy. Indeed, power reforms figure fairly high in the PM’s reform agenda. If the country has a shortage of power, it makes little sense to create conditions for people to waste it. Moreover, the power sector needs to invest in power generation, transmission and distribution. The investment needs of the sector cannot be fulfilled if state electricity boards are run to the ground in order to fulfil the political agenda of the party in power.

Amarinder Singh will, to his credit, provide an on-budget subsidy to ensure that the Punjab State Electricity Board does not suffer losses. He is attempting to ride on the back of higher revenue collections thanks to VAT. But this may prove dangerous in the long term because it has often been seen that in the first year of VAT revenues go up since it takes time for refunds to be made. Once the refunds start, revenues could fall, and by then it may be too late to withdraw the free power scheme. In the meanwhile, much damage would have been done, with the greater use of power — encouraged by such bonanzas — creating more power shortages. This could, in turn, render Punjab unattractive to the revenue yielding manufacturing sector. In other words, the Captain could well end up killing the goose that lays the golden egg.