The AAP government's free power programme is good politics, better economics
Aam Aadmi party (AAP) national convenor Arvind Kejriwal's big election promise in the upcoming elections in Punjab, Goa, utrakhand and utter pradesh is 300 units of free electricity along with uninterrupted electricity supply. While free electricity may be a popular election plank, it Is often vilified as a "freebie". How ever, the free power programme has a quantifiable impact on economic growth.
The benefits of electricity on human development are known. When tasks such as hand washing clothes and carrying water from distance are simplified using appliances, people are freed up to do more productive work. By providing free electricity up to 200 units the AAP has enabled people to leverage these benefits without worrying about the costs.
In Delhi berring the summer, the free power subsidy is delivered to more than 73% of all households. It is also more efficient than a tradition DBT programme, because, for Delhi, with a transient population, the administrative cost of identifying beneficiaries is like to be high.
The cash transfer nature of the programme can also have short turm benefits for the local economy. The households saving on power are like spent in local markets. In the covid-19 era, when government's re struggling to stimulate demand, and when neighborhood markets are struggling to attract customers, such a broad based welfar measures can prove to be a fillip for the local economy.
Enhanced access to power supply also has a quantifiable effect on economic growth. A 2020 uc Berkeley study showed a strong correlation between per capita electricity consumption and per capita gross domestic product (GDP). In India, a 2018 OPEC study conducted that a 1% increase in electricity consumption leads to huge 0.77% increase in economic growth in the long term.
What this reveals is that electrification is not enough to experience the transfometive power of electricity on the economic. The state will have to incentives consumers to use electricity to fulfill their basic needs. The AAP's free power subsidy does exactly that. Delhi's power consumption increasesed substantially over the past few years in part due to the low traffics and subsidies. Its peak demand in the summer of 2021 touched a record high of 7,400 MW. Between 2015 -16 and 2020-21, Delhi's GDP grew at 7.7% a rate that defied India's economic slowdown in the same period. The effect of increase electricity consumption on productive can explain the state's impressive growth trajectory.
However, the idea is not to encourage consumers to engage in wasteful use of energy. Since the AAP government demands a full price for use beyond 200 units, the programme nudges households to self-regulate consumption.
Increaseing coal-based power consumption is also not optimal. Technological efficiency and the transition to renewable energy production will ensure that increaseing power production does not adversely impact the environment. Delhi's power distribution companies (discoms) too have recently cancelled power purchase agreements with six coal bassed power plants and replaced them with cheaper, greener sources of power.
Free electricity can also have turn around the power sector. Critics often allege that subsidies weaken the financial health of discoms. In contrast, Delhi experience shows that power subsidies can improve the health of the power sector. As Kejriwal once wrote, cheaper electricity incentives ed consumers in Delhi to sign up for legal power connections (up 20% from 2014 to 2019), which led to a sharp decline in transmission and connection losses (down from 17% in 2013 to 8% in 2019).
Since the government pays the discoms for Power consumption, discoms are guaranteed an assured cash flow from the government discoms have become willing partners with the the government in upgrading the city's power distribution infrastructure. This investments have led to Delhi experiencing a more consistent power supply in recent years.
Good politics doesn't always make for good economics. The free power programme breaks that mould.
Akshay marathe has a spoke person of the AAP. He is currently studying public policy at Harvard University The views expressed are personal
