Just days before he retired, NTPC chairman Arup Roy Chowdhury came up with a great suggestion —instead of state electricity boards (SEBs) supplying subsidised electricity to various types of consumers, why not supply it at market prices and give subsidies to them via direct benefit transfers (DBT)? As a result of this, the vastly subsidised electricity that gets shown as being supplied to farmers or households but actually gets supplied to industrial consumers will now be fully paid for—while industrial users paid Rs 6.24 per unit in FY14 and commercial users R7.64, households paid just Rs 4.08 and farmers a mere Rs 1.83 on average. In the event, as in the case of LPG where the government used DBT to weed out 3 crore fake users without even touching the subsidy per customer, the government will save tens of thousands of crore rupees in electricity subsidies each year—according to chief economic advisor Arvind Subramanian, the LPG subsidy has been cut by around a fourth by using DBT alone.
To put some perspective on just how big the problem is, while the gross subsidy burden of SEBs rose from Rs 70,012 crore in FY10 to Rs 1,19,621 crore in FY14, about Rs 52,000 crore remained uncovered in FY14—in FY14, subsidies to agricultural consumers was Rs 67,000 crore while those for residential consumers was Rs 40,000 crore. None of this is to say electricity boards should not raise tariffs—the average gap between costs and recoveries was Rs 1.13 per unit in FY14—but the amount of hike can be lowered if the theft that takes place is reduced. While power minister Piyush Goyal needs to work on SEBs to get them to raise tariffs, he would do well to get them to computerise their list of users and seed this with Aadhaar so that, over the next 6-8 months, direct cash transfers can be made to users. As in the case of food subsidies, perhaps a beginning can be made in a few areas like Delhi and, once successful, the pilots can be scaled up. While many will argue seeding won’t be easy and can take years, it is worth keeping in mind the Jan Dhan bank accounts are just a year old and, according to the press release put out on the first anniversary, 42% have already been seeded with Aadhaar.