ICCK

A study by Brookings India has discovered that the Delhi government’s household electricity subsidy is amongst the most generous in India.

“With eligibility based on how much you consume, the upper bound threshold for availing subsidies is so high that on average about 80% of households qualify for a 50% taxpayer subsidy. In some months, this goes as high as more than 95 % of households,” said Brookings in the study.

According to the analyst firm this is beyond cross-subsidies approved by the Delhi Electricity Regulatory Commission (DERC) in the tariffs that keep household power prices lower than the cost.

Subsidies are regressive – mid-level consumers of power, ostensibly the middle classes, enjoy more benefits on a percentage basis than the lowest consumers -- the poor. The lowest tier, on average, gets under 33% net billing subsidy, while those using a little under the limit get over 40% net subsidy.

The average household subsidy varies from a little over Rs 1,000 per year for those who consume up to 100 units per month to over Rs 9,000 per year for those whose consumption is 300-400 units per month.

Altering the subsidy rules only slightly can save significant money, while still offering benefits to targeted segments of the population.

“For example, lowering the threshold of maximum monthly consumption to be eligible for the subsidy from 400 to 300 units per month results in almost 30% taxpayer savings while reducing coverage by only about 13%. Going to 200 units a month still covers over half the population -- compared to 80% now, but can save two-thirds or about Rs 1,000 crore per year.

“Subsidies in the power sector aren’t new or unique to Delhi. These can play a helpful role in keeping power affordable for citizens, but the downsides of poor subsidy designs range from poor signalling of true costs, leading to wastage, to over-charging some users and financial losses for the utilities,” said Brookings in its study.

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