Enjoy your free lunch today, Delhi; the dinner may not be there, though

A father, who had limited income and many kids to feed, declared one fine day, “The kid who foregoes his or her lunch today would get Rs. 50 before dinner.”

The kids were shocked. They had not seen even a ten rupee note being given by their father. They knew their father as a miser and were not accustomed to such benevolence. They were more used to their basic needs being flatly denied because of paucity of funds. All of them happily accepted the offer, too readily.

Poor kids stayed hungry and were feeling famished by evening but the lure of Rs. 50, in cash, kept them going. They were still excited about the booty, they were to be gifted at dinner time.

Dinner time came and to their surprise, the money was actually distributed.  Happy kids pocketed the money quickly before their father would change his mind and sat down for dinner.

Then the father made a dramatic announcement.  “Today, dinner would cost Rs. 50. Only those who pay Rs. 50 would get dinner.” He said.

Children were aghast! What does it mean?

No dinner? Or the other even horrible option of parting with the booty?

Hunger has the capability of making even thieves of any man, it is said. Poor kids, famished since afternoon, hunger gnawing at their intestines, they took the only option available to them and parted with the princely sum to get their dinner.

One smart aleck did suggest that they could buy their dinner outside with the money they had. But that would not have changed the equation; money or dinner.

Delhi power subsidy is like the above story only with a small difference; instead of missing lunch, 

Delhi would miss its dinner or probably even breakfast, next morning.

Delhi power subsidy is going to cost Rs. 2400 crore (official figures are 1400 Crore but then these are what they are; official figures). Combined with free water it might touch Rs. 3000 Cr.

Since Delhi has little likelihood of finding a hidden treasure beneath Tuglakabad fort, it is obvious that money spent on this subsidy would either be recovered from the public by enhancing taxes somewhere else or by cutting down services in some other sector to cut expenditure.

But then, Delhi knew it when it voted and it has already indicated its readiness for dilution in

Today's Subsidy - Tomorrow's Misery

quality of other services in lieu of cheaper power. Delhi had a choice to make and they did so in their wisdom, as the children in the above example did. So that is not the problem.

The problem is with the threshold style subsidy which is given. If the monthly consumption is upto 400 units, it is subsidized 50%. If the monthly consumption goes beyond 400 units, existing rates apply.

Take a household which consumes 300 units. Its bill after subsidy would come to Rs. 730 at an average unit cost of Rs. 2.43. At this price of power, is there an incentive to save electricity by buying some LED lights or 5 star rated equipment to reduce my power consumption further? No. As the payback period for such equipment goes up, it becomes uneconomical. On the other hand, the household can consume 100 more units with minimal increase in the bill (another 100 units would cost less than Rs. 300). So, lets go and buy that electric tandoor we have been eyeing for long!

Now take a household which consumes 500 units. This household is not entitled for subsidy and the monthly bill is Rs. 2270.  Now, if It could reduce consumption to less than 400 It can bring down the bill to only Rs. 1000, a saving of good Rs. 1200 per month!

What would this household do?

Such a household would be knowledgeable and aware enough to know that India is power deficient country, many cities do not get even half a day of supply, the cost of power generation is very high and the subsidy has been given so that poor people of Delhi can afford to use the power for raising their standard of life. They are also aware of the environmental damage that the power plants cause and the threat to our dear earth due to our over consumption of its resources.

Nah! If you believe this, you are living in la la land.

How would they do it, then? There are several ways and consuming less power is not one of them.

• They apply for a separate connection for another member of the family and distribute the load. The power consumption gets distributed to two connections at 250 units each and the total bill for both connections comes to Rs. 1170.
• They bribe the lineman (he is a human being after all and like anyone else, he too can be bribed) to tamper with the meter to restrict the monthly consumption to 400 thus reducing the bill to Rs. 1020 only.
• They can contact the local electrician to create a byepass, hidden from the prying eyes of discoms to supply free power to their air conditioners. Their consumption can go down to even 200 and bill can be reduced to Rs. 400 to 500 per month.
• The age old Katia is always available, though known as a low class method, but effective.

In short, one can say that this method of threshold basis subsidy will suddenly make theft and pilferage very attractive, provide enough opportunities and incentive for corruption. A similar logic would work for water where people would try to keep the meter reading below 20000L.

Summarizing the above up, what we get is this.

The power consumption would go up because of users propensity to stay close to the discount threshold. Discoms would find it difficult to buy power at existing rates and their realization per unit would not be enough to buy the premium power.

Billed power would go down due to theft, diversion and tampering, Discom revenue would go down, straining their finances further, limiting their ability to maintain the existing network, forget about upgrading it to carry increased demand.

Subsidy outgo for the Government would go up as more people would like to stay in the range of 350 to 400 units per month, Government would need to cough up more and more money for the same consumption.

Result: More power cuts, more breakdowns, Discoms pulling out, Government may need to take over power distribution again and good old DESU with its 18 hour power cuts gets back in the reckoning. Government, burdened by the high subsidy bill, would need to cut allocation for other services, probably health and education.

But why worry? Delhi would have its free lunch, even if it has to forego dinner and probably breakfast too tomorrow.