One cannot but feel sympathy for Power Minister Piyush Goyal. He is highly intelligent, articulate and efficient. Unfortunately for him he has been given charge of the impossible portfolio of power.
Power is a concurrent subject in the Constitution. That means the Centre is in charge of everything that is not within a State. Thus central generation companies, all inter-State transmission including lines going through States, inter-State dispatch, regulating power exchanges, are all under the Centre.
State governments have sole responsibility for all generation within their States except plants owned by the Centre or set up to supply other States, intra-State transmission, State load dispatch centres, and distribution and supply to customers and billing them. States appoint the regulatory commissions in the States and the Centre appoints the central electricity commission and the appellate tribunal.
The State government is thus the final contact point that deals with all customers. Tariffs, billing and collection, supplies, maintaining safe, efficient transmission and distribution, preventing electricity theft and technical losses, licensing new operators in the State, are all under the State government.
Some functions are given to a statutory regulator. The State government appoints the selection committees that select regulators, thus ensuring they are compliant with State government interests and preferences. The bane of electricity distribution in India is our erratic monsoon that makes States give free power to farmers. Free power is meant to draw ground water; India is said to be the largest user of ground water for agriculture.
The pumpsets in use are inefficient and use excessive electricity. It is believed that increased thefts of electricity in States are hidden under “free power to agriculture”. Gujarat initiated separate feeders for agriculture and has brought down the number of thefts. The cost of free power has to be first borne by the distribution companies.
Most distribution of electricity is by State-owned electricity boards that have run up huge losses. These have been twice paid off by loans from the Centre but the condition that the States improve performance has not been fulfilled. The present special dispensation that will allow State governments to take these losses into their books from the SEBs and not count them in the deficits for two years, is likely to meet the same fate. There is no compulsion on State governments to improve.
Ways outOne way out is to ask nationalised banks not to lend to SEBs in deficit. This will be politically impossible.
The Centre could lay down strict standards for pumpsets and the States might ensure they are followed. By segregating agricultural feeders the State can ration out the power to agriculture and minimise theft. Gujarat has done this effectively. The State could restrict free power only to small farmers owning only one pump. All power to farms could be metered and so misuse could be prevented. Ultimately the State governments must have the will to minimise free power.
Proximity to the voter makes free power to agriculture inevitable. Either the SEBs could be given out to private parties on contract management, or they could be privatised, with strong audit and statutory regulation to ensure that the customer is not exploited. A private contract manager or owner will not permit the inefficiency and collusive theft that are common today. Cross-subsidies must be abolished. This could be incorporated in the to-be amended Electricity Act 2003 so that regulators have no option but to disallow them. If farmers have to get free power, that is a political decision by the State government. It should bear the costs.
There is little the Centre can do to improve performance of distribution companies within the present Constitution. It could refuse to supply coal, power, rail transport or other services that have to come from the Centre.
It could ban inefficient pumpsets. Most importantly the Centre can change the relative price structure of agricultural products. Paddy (rice) is no longer a growing item in household budgets and could be discouraged in household use by changing minimum support prices. State governments could be helped to introduce cash transfer schemes so that identified beneficiary households get the subsidy in their bank accounts for the electricity they buy according to the meter.
Without determined action, Goyal’s initiative will meet the same fate as similar earlier ones.
The writer is an economist and former chairman of the Central Electricity Regulation Commission