FREE POWER A Step Backward!

Summary

Free Power: A Step Backward! is a 2004 Forum of Free Enterprise booklet by the Thane-based energy management consultant Harish Budhlani, reprinted from an article in IEEMA Journal (September 2004). Budhlani argues that India’s chronic underperformance in the power sector — per capita consumption of about 400 kwh against China’s 850 kwh and the United States’ 12,300 kwh, capacity-growth halved over 1995–2004, and State Electricity Board commercial losses anticipated at Rs.21,698 crore in 2004–05 — has finally produced a serious piece of reform legislation in the Electricity Act 2003, with provisions to phase out subsidies, deter theft, and put the sector on commercial principles. He warns that the new United Progressive Alliance’s Common Minimum Programme proposal to review that Act, and the decisions of Andhra Pradesh, Tamil Nadu and Maharashtra to revive free power for farmers, betray a consensus that all Chief Ministers had reached with the Prime Minister to charge a minimum of 50 paise per unit.

The core of the booklet is a populism critique grounded in distributional facts. Budhlani argues that only 8–10 per cent of a Rs.1,500-crore-per-year free-power scheme will reach small farmers, with the bulk flowing to large and rich farmers; that nearly half of farmers depend on rainwater and only fifteen per cent use pump-sets, so the right policy is targeted relief — direct reimbursement of bills (as in Kerala), interest waivers on farm loans, or a uniform 50–100 paise tariff — not blanket give-aways that push State governments deeper into deficit and demoralise SEBs. He invokes Union Agriculture Minister Sharad Pawar’s own statement that farmers want reliable power at a reasonable price rather than charitable power, and cites Shetkari Sanghatana’s senior leader Sharad Joshi (referred to as ‘Kamgar Paksh’) as a farmers’ voice opposing the free-power decision.

The closing argument is institutional. CERC and SERCs, Budhlani writes, must set tariffs that progressively reflect the cost of supply; private investment in generation, transmission and distribution — the only realistic route to closing the 8,000–9,000 MW annual capacity gap — will not come if State governments continue to send populist signals or expect regulators to absorb political pressure. The Electricity Act 2003 must be implemented ‘in words and spirit’; otherwise India’s familiar pattern of ‘two steps forward and one step backward’ will defeat the goal of power for all at an affordable price.

Key points

• Per capita electricity consumption in India (~400 kwh) is roughly half of China’s and a fraction of the United States’ (~12,300 kwh), and capacity growth over 1995–2004 slowed to 3.6% — half the previous decade’s rate.

• The Electricity Act 2003 is praised as well-drafted legislation: it mandates regulatory commissions, gradual elimination of subsidies and cross-subsidies, advance government payment for any subsidies (Clause 65), and deterrent punishment for theft.

• The UPA’s Common Minimum Programme proposal to review the Act, and free-power announcements by Andhra Pradesh, Tamil Nadu and Maharashtra, break the Chief Ministers’ consensus with the Prime Minister to charge a minimum of 50 paise per unit.

• Distributional analysis: only about 8–10% of a Rs.1,500-crore free-power scheme would actually benefit small farmers; the remainder accrues to large and rich farmers, while Maharashtra already carries Rs.90,000 crore of state debt.

• Author cites Union Agriculture Minister Sharad Pawar — and Shetkari Sanghatana’s senior leadership — for the position that farmers want reliable, affordable power, not free and charitable power.

• Alternatives proposed include reimbursement of electricity bills for genuinely poor farmers (as done by Kerala), interest waivers on farm loans, and a uniform 50–100 paise/unit tariff fixed in consultation with the Prime Minister.

• CERC and SERCs must be allowed to set fair, affordable, cost-reflective tariffs without political interference; otherwise private sector investment in generation and distribution will not materialise.

• Populist free-power decisions endanger SEB finances, deter domestic and foreign investment, and undo two decades of reform momentum.