Saubhagya scheme: Electricity to all households a positive move, but can Modi govt resist subsidy?

After the fairly successful implementation of the UDAY Scheme, the government has taken the next logical step of planning for providing electricity to all households. The Saubhagya Scheme seeks to accomplish this task with an outlay of Rs 16,230 crore of which Rs 12,320 crore would be paid by the Centre and the balance by the states and utilities. It is not clear whether this amount would be a fresh allocation of spending on the part of the government or whether it would be from the existing allocations which reside in the respective budgets for FY18. If it is within the Budget then Saubhagya would ensure that there is focus for such allocations. If it is outside the present budget, then it could be looked at as being a stimulus to the economy in a limited way.

Today around 20 percent of the population has no access to power. Even the definition of an electrified village is quite nebulous. Presently, the concept is that if 10 percent of the residents have access to a connection, the village qualifies as being electrified. The quality of power in terms of availability for a reasonable number of hours does not enter the concept. Therefore, even when the scheme talks of providing power to all, the quality of supply will not be known. It is important because other such radical schemes like the one directed at creating toilets have issues of theft and supply of water. But this is nonetheless a very progressive measure, as if the government is able to provide a connection toe very households it would be a reasonable achievement.

 Saubhagya scheme: Electricity to all households a positive move, but can Modi govt resist subsidy?

India’s power situation is quite disjointed. There is surplus generating capacity but production or generation is limited by the availability of cheap raw materials as well as transmission and distribution issues. The front end through the distribution company has accumulated losses and is not in a position to pay for the purchase of power, which hence forges negative backward linkages. UDAY seeks to address the issue quite comprehensively by first to have the states take on the losses of the Discoms and then ensuring that the accompanying reforms are introduced in the form of tariff revisions, better metering of power, reduction in power losses etc.

Saubhagya has two sets of implications. The first is on the social side. The fact that more households will fall within the power supply network is positive as it will provide a better living to them. This will also empower them in terms of self-employment which is restricted today due to shortage of power. Effort has to be relentless to ensure that the supply is also continuous or otherwise it would defeat the purpose.


Representational image.AP

The second is economic in nature. As the Indian economy is still facing challenging times in terms of growth, such an outlay would help to a limited extent to provide a push rather than an impetus to the economy. The industries that would benefit would be coal, transmission, distribution and the goods and services that go along with this process. One should not read too much into this positive effect as the amount involved is around Rs 16,000 crore and could be spread over a little less than 2 years (up to December 2018).

Saubhagya envisages that the consumer would pay for the power consumption. However, the service can be provided at a lower tariff which could vary across states depending on their preferences.  The UDAY scheme makes it clear that all future losses of Discoms have to be taken on the books of the states progressively. Hence, subsidised power given to the poor would have to be booked by the state in the budget or alternatively taken on their books as losses of Discoms. Hence, states will have to be ready to pay this bill. Households are also supposed to pay Rs 500 per connection over 10 months, which could also be waived by the state if it so chooses. It would be interesting to see if any state decides not to subsidise this power supplied to the poor.

Saubhagya is definitely a very positive move to bring electricity to all households. One can be confident that the last mile connectivity will be achieved. But to follow up with regular supply of electricity will be the challenge. For most social schemes, governments in the past have been quite effective in creating structures, but lose direction along the way.

The cost involved in running such a scheme has to come from the state. This really raises a broader question of whether or not we are still relying on subsidies to deliver public services in case it is provided. There has been some major progress made in lowering the level of subsidies in the economy, but bringing in such a subsidy would also raise issues of whether it is akin to providing the same for farmers, which has become prevalent in various states. While the idea to subsidise power supply to the poor is necessary and has to be done, the government has never been able to reconcile the same action with the ideology of rhyming the same with fiscal targets.

(The writer is Chief Economist, CARE Ratings. Views are personal)

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Updated Date: Sep 26, 2017 20:59:20 IST