Indians may soon get cash for using electricity, if a new model along the lines of LPG Direct Benefit Transfer works out. In order to provide affordable electricity to the poor households in India, the World Bank is working with state power distribution companies in the country to emulate LPG DBT scheme, under which consumers are given cash subsidy for buying LPG at market price.
While praising the central government’s LPG reform, Fan Zhang, a Senior Economist in the Office of the Chief Economist of the South Asia Region at World Bank, told The Indian Express that removal of price distortion due to subsidies and then the introduction of real-time cash transfer is “a good example of how to give subsidies and protect poor households.”
“The World Bank is already working with some state distribution utilities in deciding new ways of providing direct cash transfer, rather than create a distortion in electricity price, to protect the poor. Right now, under the current structure, they overcharge industry so that they can provide electricity to agricultural households at the low price. There are experiments being done on the ground on what are the ways to protect the consumers well from such distortions,” she added.
Further, Zhang said that subsidies are not the main cause of distortion. According to the analysis by the World Bank, institutional distortion like coal supply at a higher price due to an uncompetitive market is having a larger effect on the power sector in India than the distortion by subsidies, Zhang said. She also added that the important thing here is to protect poor households in the country and provide electricity to them at an affordable price.
On Monday, the World Bank released a report titled “In the Dark: How much do power sector distortions cost South Asia. In the report, the World Bank said that distortions in India’s power sector had imposed a total economic cost of around $86.1 billion or 4.13% of the country’s GDP in the financial year 2015-2016. The fiscal cost, consisting of subsidies to distribution utilities, was reported at $8.8 billion or 0.42% of GDP in fiscal 2015-16.