The Punjab government’s decision to give 300 units of free electricity per month to all domestic consumers will have disastrous consequences. The electoral promise of free power, being replicated by parties across states, will delay the energy transition. Not only will it contribute to India’s rising emission profile, but it will also set back efforts to tackle air pollution and exacerbate water stress. It will play havoc with state revenues, as the subsidy bills will rise exponentially.
Of the 73.80 lakh households served by the Punjab State Power Corporation Ltd (PSPCL), nearly 62.25 lakh (84%) consume less than 300 units per month, the average consumption being 137 units a month. Free power should lead to doubling of consumption, requiring the utility to buy more power and disincentivise efficiency measures. A developing India will need to limit emissions through increased electrification of the economy and shift to renewables. Free power to domestic consumers makes that difficult as it requires continuing with the perverse system of cross subsidy in which commercial and industrial users pay more for their electricity, making it unattractive to electrify the economy and to shift away from coal.
The Punjab government will foot the bill with income from excise and mining. Higher excise means no relief on fuel and increased sales of items such as liquor. The Aam Aadmi Party government, however, is not alone. Ahead of the elections, the ruling Congress in Punjab slashed tariffs. In Uttar Pradesh, the incumbent BJP government promised farmers free power for irrigation, and the Samajwadi Party and AAP promised 300 units of free power. Support to targeted sections should be provided as cash support avoiding distortions in the market.