In order to bring down the fiscal deficit, the government has hiked prices of essential commodities such as diesel and power. These decisions have generated a storm within the Government, with the Trinamool Congress having withdrawn support.
In the case of power, the critical issue of consumption patterns is overlooked. Power tariffs are raised without giving much thought to variations in consumption patterns between rural and urban areas, and within rural and urban areas. A uniform increase across categories leads to an unfair burden on consumers who are less well-to-do.
Therefore, structural reforms in domestic power tariff should be given due importance, before taking any decision on price rise.
CONSUMPTION PATTERNS
Tariffs should be based on the number of units used. Each household consumes power according to its ability to pay. The NSS household consumption expenditure survey 2009-10 shows that 3.8 per cent of the total households in the country survive with power consumption of less than 10 units a month. In rural India, this share is 4.5 per cent, compared with urban India’s 3 per cent.
It is also found that 6 per cent of all India total households consume 10-20 units a month. Of this, the share of total rural households is 7.1 per cent whereas 4.6 per cent of total urban households fall under this consumption bracket.
Therefore, 9.8 per cent of all households spend less than 20 units a month. It is, in fact, observed that 45 per cent of all households are covered under the consumption category of below 50 units a month. Sector-wise, 54 per cent of rural households and 34 per cent of urban households are covered under this category.
TARIFF FIXATION
However, no States have defined domestic power tariff rates under the scale of monthly power consumption of 0-10 units, 10-20 units, etc. In many States, the lower limit of the consumption class starts at 0-100 units a month, and the tariff rate for all the consumers inside this consumption bracket is the same. There is different tariff rate for the consumers under the monthly consumption limit of 100-200 units, 200-400 units and so on.
This classification of domestic consumers varies from State to State. For example, in Maharashtra, the consumption class starts from 0-100 while in Delhi it starts at 0-200. Similarly, the share of consumers under the defined consumption classes also varies at the State level.
Keeping State level differences aside, overall 79 per cent of all-India total households are covered under the consumption bracket of less than 100 units a month. In rural India, this consumer class accounts for 87.5 per cent of the population, while in urban India it is 69 per cent.
Subjecting a major share of households to a single tariff rate seems an ill-advised approach. Before preparing the tariff schedule for domestic consumers, all domestic consumers in a State need to be classified into smaller consumption categories.
The rise in tariff needs to be lower, at lower levels of household consumption. An equal rise in tariff rate for each category would affect the weaker sections most.
IMPACT ON POVERTY
It is estimated that at an all-India level, a 24-per cent tariff hike is likely to raise rural poverty from 22.8 per cent to 23.3 per cent, ceteris paribus . This means the tariff hike will drive 0.5 per cent of rural households in the country below the poverty line. Similarly, urban poverty will rise by 0.8 per cent i.e. from 20.6 per cent at present to 21.4 percent, with a 24 per cent tariff hike.
The present policy of raising tariffs under different consumer categories varies from State to State. In Maharashtra, there is a proposed 8.2 per cent decline in tariff rate for the BPL households. However, for the households coming under the monthly consumption bracket of 0-100 units, there is 25.4 per cent rise in tariff. Further, there is a 6.4 per cent rise in tariff in the consumption category of 101-300 units per month followed by a 1.7 per cent rise in the 301-500 consumption limits.
Again, in the consumption category for 501-1,000 units, there is only a 0.3 per cent rise in tariff rate and a 0.1 per cent reduction in tariff rate in the highest consumption category i.e. above 1,000 units per month.
This shows the Maharashtra Electricity Regulatory Commission allows for lower levels of tariff increase for higher levels of consumption, which is totally different from the Delhi Electricity Regulatory Commission’s tariff policy.
In Delhi, there is a 19.4 per cent rise in tariff for the consumption category of 0-200 units per month. For the consumers within the category of 200-400 units, the rise in tariff rate is 17.1 per cent. However, there is a 24.3 per cent rise in tariff for those consuming above 400 units per month.
RURAL SCENARIO
There should be separate tariff rates for the rural and urban households, as there is a significant difference in their consumption. Average power consumption in rural areas is 61 units a month, and in urban areas it is 100 units.
From these figures, it is apparent that there is a greater concentration of households in lower consumption brackets. There are State-wise variations in the ratio of rural-to-urban domestic power consumption. In Delhi, the urban share is 95 per cent of total domestic power consumption in the State, while in Himachal Pradesh it is 24 per cent.
However, there is no State-level specific tariff policy for the domestic power supply in rural areas. Rural households pay the same tariff as their urban counterparts under the similar consumption category as defined by the Electricity Regulatory Commissions.
The ratio of rural-to-urban domestic power consumption in the State should be taken into account in the form of a weightage, to prepare differential tariff rates for rural and urban households.
There is also a need to introduce differential tariffs at the district level. All the districts in a particular State are not equal in terms of their average domestic power consumption. For example, in Maharashtra, the coastal districts are ahead of their western, northern, central and eastern counterparts in this context. For the State as a whole, its average household power consumption is 69 units a month. However, in Mumbai, it is 144 units a month followed by Thane’s 120 units. But Gondiya district in eastern Maharashtra stands at the bottom, with the State’s lowest household power consumption of 41 units a month. Therefore, it is unfair to equate Gondiya and Mumbai while determining domestic power tariff.
These issues need detailed examination before embarking on power tariff hikes. The Rajiv Gandhi Grameen Vidyutikaran Yojana aims at providing electricity access to all rural households, and free connections to all BPL households. However, the objective should not only be to spread the power infrastructure to every region, but to provide power to every household at an affordable price.
Therefore, structural reform in domestic power tariff is the need of the hour.
(The author is Assistant Professor, Economics, Symbiosis Institute of International Business, Pune)