NEW DELHI: A strong view is emerging in the corridors of power to use the Direct Benefit Transfer (DBT) mechanism in the domestic electricity market. This, according to those in the government as well as in industry, will bring greater transparency into the system.
Arvind Subramanian, Chief Economic Adviser to the Finance Ministry, has been pretty vocal about this: “It’s time to do away with the cross-subsidies that exist in the system today…make people pay for power but equitably,” he told BusinessLine.
Shifting the subsidy from the power distributor to the consumer is being spoken about in various quarters. In fact, on November 24, in sync with what Subramanian said, Minister of State (Independent Charge) for Power and Renewable Energy RK Singh said: “We cannot expect a section of consumers to cross-subsidise another section of consumers beyond a certain level. There should be support through DBT for power.”
DBT has been a success in domestic LPG, and the government has been looking at various sectors to replicate it.
But, how will one decide on who gets the benefit of subsidy transfer in case of electricity? For instance, in the case of domestic LPG, it is based on the taxable income of consumers.
All stakeholders — government and industry players — agree that it has to be based on consumption in the case of power. Subramanian is quick to point out that the exact structure of DBT for power needs to be worked at and after the pilots are conducted a final mechanism should be put out. Ashok Khurana, Director-General, Association of Power Producers, acknowledges that it will be good for the consumer, but adds that “it has to be consumption based.”
Today, for domestic consumers, the rates range from as low as ₹1 a unit (subsidised areas) to ₹14 a unit, irrespective of their purchasing power.
The actual cost of power that producers sell to distribution utilities is ₹3–5.50 a unit (average cost), but the spike at the consumer’s end is mainly due to taxes and transmission charges, including inter-State levies. Subramanian believes that there is much greater scope to make power tariffs more progressive, even within consumer categories.
While bringing electricity under the Goods and Services Tax regime is the call of the day, as is the case with petroleum products, for electricity also States are unwilling to let go of their revenues.
Besides, the topic is yet to be taken up for discussion at the GST Council.