As the next election cycle nears, politicians are once again promising cheap, even free electricity, to voters. After he assumed charge as the chief minister of Punjab, Charanjit Singh Channi burnt copies of electricity bills and announced restoration of power connections which were disconnected for non-payment of bills. And the Aam Admi Party (AAP), which used the free-power promise effectively in Delhi, is making similar promises in states such as Punjab and Uttarakhand. While there are some benefits to these policies, they can be detrimental in the long term. Here’s why.
1. Why pays for power subsidies in the end?
There really is no such thing as a free lunch. Power distribution companies (Discoms), which buy electricity from electricity producers (Gencos), are obliged to pay for it at commercial rates. When governments offer cheap or free power to households or farmers, they have to compensate Discoms for the residual amount. This is done in two ways. State governments subsidise or end up taking over the debt of Discoms.
