By Bhamy V. Shenoy, Energy Expert & Social Activist
Congress party’s five pre-poll guarantees have been getting more attention after the election than they received before the election. This is unfortunate. Depending upon one’s predilection for political parties, ideologies or backgrounds, analysis of five guarantees varies from full support to how they will destroy Karnataka’s economy.
Those who support argue that they should be considered as empowering the people and not a charity nor a freebie. On the other hand, those who oppose argue that freebies will promote a culture of free lunch, increase financial deficit leading Karnataka to face financial disaster like Sri Lanka or Venezuela.
A rough estimate of the cost of five guarantees is around Rs. 60,000 crore to Rs. 65,000 crore per year which is roughly 20 percent of Karnataka’s budget and equal to last year’s revenue deficit. Cost breakdown is Rs. 39,000 crore for Gruha Lakshmi, Rs. 14,500 crore for Gruha Jyothi, Rs. 5,600 crore for Anna Bhagya, Rs. 4,600 for Shakti (free travel) and Rs. 1,300 crore for Yuva Nidhi.
It is possible that unlike four other guarantees namely Gruha Lakshmi, Anna Bhagya, Yuva Nidhi and Shakti, Gruha Jyothi will have an unintended consequences which might not have been considered by the Congress party.
Every one knows of the subsidy burden on the exchequer and the needed compromise between competing needs of the voters — providing access to better health, quality education, uninterrupted and quality power supply, etc. Here the ruling party is on strong ground since voters have made the choice — right or wrong, educated or uninformed. As is often said, like every thing is fine in war, in electoral war also much criticised freebies can be justified. But, not legally perhaps.
Last year, on Aug. 26, the Supreme Court (SC) gave a judgement on a Public Interest Litigation (PIL) filed by BJP Spokesperson Ashwini Upadhyay to look at the complexity of the issues involved and the prayer to overrule a judgement rendered by a two-Judge Bench of the SC in S. Subramaniam Balaji case of 2013. In Balaji’s case against Tamil Nadu, the SC had held that the promises made by political parties in the election manifesto would not amount to ‘corrupt practices’ as per Section 123 of the Representation of People Act.
However, it did observe that freebies influence all people and “shake the root of free and fair elections to a large degree.”
Cost of Gruha Jyothi is three to four times the revenue gap of power sector in 2020-21. When agricultural sector is given even more subsidy which has become sacrosanct despite all its devastating impact, one can justify giving such nearly universal subsidy for Gruha Jyothi. But can we really?
Even before the pre-poll guarantees, Karnataka’s fiscal deficit was 2.6 percent. Now the new deficit will be 5.4 percent which is higher than 3.0 percent mandated by the Karnataka Fiscal Responsibility Act 2002. This will force the Government to reduce budget in some sectors or impose new taxes. Both will be a herculean task.
One of the often repeated arguments against freebie is that it can result in unmanageable deficit and create economic havoc. Still political parties can win election by offering all kinds of freebies. However, our Constitution-makers anticipated such a situation. They have provided guardrails to stop such behaviour on the part of political parties of ever-increasing freebies.
Politicians, specially AAP, claim that India’s Constitution allows them to offer welfare measures. At the same time the same Constitution through Articles 292 and 293 mandates borrowings to be within limits. The Constituent Assembly of India discussed these Articles on Aug. 10, 1949 led by H.V. Kamath and Ananthasayanam Ayyangar. To quote them, “So far as borrowing is concerned, they may be short or long-term, imposing heavy obligations upon not only the present generation but future generation also.” How true.
Let us take a look at the research findings of international institutions (International Monetary Fund, International Energy Agency and the World Bank) and academicians who have studied the controversial topic of subsidy in different parts of the world.
Their findings show that a subsidy like Gruha Jyothi (subsidising power consumption) is harmful and in the long run affect the very poor people it is expected to help. However, all of them do support giving conditional or unconditional benefits in the form of cash to needed families. In fact even the concept of minimum guaranteed income (Gruha Lakshmi is one such admirable guarantee and so also earlier Bhagya Lakshmi) is justified if financial conditions of the countries allow such schemes and keep deficit within limits.
In 2010, Iran successfully replaced offering subsidised fuels by giving cash transfer. Even though petrol prices increased by 400 percent and diesel prices by 900 percent, subsidy reform was widely accepted. Like Iran, Jordon implemented similar subsidy reform in 2015 with equal success. In fact, way back in 1997, five million poorest families were helped in Mexico with conditional cash transfer (if they send their children to school) and was a great success. Similar success stories of cash transfers instead of subsidy have succeeded in Yemen, Mauritania and Morocco.
Economic historians will have a challenging task to figure out why India took many years to learn from all these successful efforts. Only in recent years after the introduction of Aadhaar, India started to adapt Direct Benefit Transfer (DBT). The highly subsidised LPG distribution programme alone, has prevented the generation of about Rs. 25,000 crore of black money in some years. This lesson of DBT of cash transfer could have been applied to Gruha Jyothi.
Let us now look at some unintended consequences of Gruha Jyothi. In recent years, economics of installing roof top solar had improved considerably. Installing solar panels is attractive. But now Gruha Jyothi will change it. When residents get free power, why will any one invest even if it is environmentally beneficial?
When one gets free power though limited to one’s historical use plus 10 percent, why will any one have an incentive to save power? Those who were thinking of using expensive LED bulbs will also lose interest since there will be no incentive.
When the world should be concerned with the existential climate change crisis and India should contribute its fair share to fight global warming, Gruha Jyothi as explained above prevents the implementation of adaption of renewable energy sources. This should provide substantial grounds to argue that Gruha Jyothi works against the Constitutionally mandated duty of protecting the environment. Another ground to argue is the long-term impact of free power as shown by the power crisis in several Soviet Union countries as argued later. In India itself, we have learnt how the free power regimes started by Akali Dal in Punjab is a serious threat to India’s energy and economic security.
Let me illustrate by sharing my experience of consulting work in Turkmenistan and Georgia soon after the collapse of Soviet Union. Turkmenistan has the fourth largest gas reserves in the world and it gave free gas to its population. When I visited one of the houses, I found the stove was burning with no cooking vessels. Owner when asked why she has not shut off the stove, responded to my shock that while the gas is free, she has to pay for the match sticks!
This is not an exaggeration. It reflects human tendency of not valuing free commodity.
Another example is of Georgia, former Soviet Union country. I was manager to reform its gas sector. After the collapse of the Soviet Union, Georgian gas consumers had to pay for gas and gas consumption fell by 75 percent. Since Georgians were not accustomed to pay, even after they became a free country, they were not willing to pay for their gas consumption. Only 25 percent of gas revenues were collected. What is true of Georgia and Turkmenistan, is true in every country when a commodity is subsidised.
While future generation is unlikely to admire the Gruha Jyothi scheme because of its anti-environmental impact, it may also be critical of lost opportunity to divert the limited resources to improve education. There is no need to convince any one how our educational system has collapsed today, especially our Government Schools. How many Schools have required number of teachers? How many have libraries and lab facilities? How many have even basic requirements of needed functional toilets? List is long. But this is enough to prove the point.
If voters are given the choice of free power and improved Schools, which one will they choose? A vibrant, non-corrupt, and non-caste driven electorate led by competent and honest candidates would have chosen the schooling. Why did it not happen? This is what we the people should reflect on. Even now as I discussed, the Government can fine tune Gruha Jyothi by offering cash rather than free power and keep their promise. To force the Government, the city-based NGO Mysore Grahakara Parishat (MGP) and other like-minded NGOs should file a PIL to force another look at free power.
Hike in electricity bill: Neither BJP nor Congress is responsible
It is unfortunate that there is much confusion or misinformation about the shocking level of increase in electricity bill. While some blame the former ruling party BJP, others blame the new ruling party Congress. But neither has anything to do with this increase. Let me explain.
First of all fixing electricity price has been handed over to an autonomous body Karnataka Electricity Regulatory Commission (KERC) since 2002 as per the Indian Electricity Act. Each year all 5 ESCOMs (Electricity Supply Companies), including our Chamundeshwari Electricity Supply Corporation (CESC), have to file their detailed accounts of their cost and submit their requests for tariff revisions.
After looking at their annual reports, KERC approves tariff changes (increase or decrease) after ensuring their costs are justified and their operations are ‘efficiently’ managed. For example if they incur a lot of transmission losses or fail to collect bills from their consumers beyond certain limits, KERC may not approve their requested tariffs. Public is also given chance to comment on the submissions of ESCOMs. Always before April such tariff changes are announced. This year because of code of conduct (I am not sure if code of conduct really mandates such an irrational activity when there is no involvement of any government officials and KERC is totally an autonomous body) tariff revisions were announced on 12.5.2023.
But tariff increases of Rs. 0.70 per unit was retroactively to be applied since April. In addition there was also Fuel and Power Purchase Cost Adjustment (FPPCA) of Rs. 1.49 per unit. Thus per unit increase is Rs. 0.70 + 0.70+1.49 = Rs. 2.89 per unit. In addition there was also increase in fixed price based on sanction load. There were also changes in slabs which resulted in increase in electricity bill.
In conclusion, sudden increase in power bills for June was not because of Congress or BJP. It was the way KERC approved the cost of ESCOMs to be recovered as per Indian Energy Act to make sure ESCOMs get needed revenues to manage their operations. If we want to blame some one for the “billing shock” it is KERC. They could have averaged the additional cost over several months.
Are scholarships freebies?
Answer to the above provocative question from supporters of pre-poll guarantees was given by Swami Vivekananda a century back. He exhorted, “So long as the millions live in hunger and ignorance, I hold every person a traitor who, having been educated at their expense, pays not the least heed to them.”
Above is especially true of IIT alumni and other premier Government institutions who are getting their education (even those who pay) at highly subsidised cost. Let me illustrate this giving example of my own experience of getting ‘free’ education from IIT Chennai. My annual fees was exactly Rs. 100 per year. We did not have to spend even on materials we needed for our classes. There was no extra fees for sports or library or hostel rents. We paid only for mess fee of Rs. 80 per month from 1960 to 1964. In today’s rupees, we got a subsidy of Rs. 2.5 crore.
But what did India get from IIT graduates? Most of us went abroad soon after graduation. Did our Institute care? Did our leaders worry? Some reports were written about the brain drain. They suggested ways to stop such brain drain. I also contributed to such efforts. But they did not have any impact. Former Prime Minister Rajiv Gandhi even commented that brain drain is better than brain in the drain. I totally and vehemently disagreed with his comment.
I fully agree with the criticism that such massive assistance to educate professionals is also a freebie. Government has every right and responsibility to expect the graduates from our Universities, specially from premier institutes like IITs, IISc, IIMs, NITs to serve the country for a few years before going abroad to settle down.
However, one mistake of offering freebie in terms of ‘giving free education’ does not justify offering freebies like Gruha Jyothi. A freebie like Gruha Jyothi has unintended consequences. It results in destroying power sector as has been amply proven in several countries including India. Therefore, let us not confuse the problem by connecting scholarships or midday meals (a much needed programme to help the needy and malnourished children) or free schooling which have no unintended questions. But such freebies help the society immensely and even prevent potential civil unrest. It looks like even one of the guarantees, Shakti, has unintended consequences. Private bus owners and autorickshaw owners are complaining. It would have been more productive had we discussed the pros and cons of five guarantees before the election. But now it is much needed.
Note: Modi Govt. or Siddharamaiah Govt. may do well to hire experienced persons in this specialised field to advice them before making economically non-viable election promises. —Ed
This post was published on June 15, 2023 7:05 pm