India’s power ministry drops plan to distribute electricity subsidy through DBT system

The Union power ministry has dropped the plan to disburse electricity subsidy to eligible consumers like farmers and households through the direct benefit transfer (DBT) system. The development comes after a section of farmers — the consumer category which receives the highest amount of subsidies among all electricity users — raised concerns that the DBT mechanism may lead to them paying higher power bills.

While the cost of power supply at the national level is around Rs 6 a unit, average tariffs for domestic and agricultural consumers are lower by 27% and 87% respectively. These sections are partially cross-subsidised by commercial and industrial users, who pay bills at rates 52% and 23% higher than supply costs, respectively.

The government intended to introduce the DBT (Direct Benefit Transfer) mechanism through amendments to the Electricity Act to restrict power distribution companies (discoms) from making arbitrary subsidy claims to recover the amount from their respective state governments.

There are slim chances of the amendments being tabled in the ongoing Parliament session as they have not yet been approved by the Cabinet.

Two earlier drafts of the amendments were floated by the Union power ministry in 2014 and 2018, but these could not be passed by Parliament. The 2014 draft even went to the Lok Sabha for discussions, but eventually could not be finalised.

Other major reforms in the Act proposed by the government are provisions to encourage cross-border electricity trade, strengthening payment security mechanisms, and the incorporation of penalty mechanisms for non-compliance of provisions of the Act. After several states protested against the proposed amendments, alleging that they dilute states’ authority to appoint electricity regulators, the Union government has also decided to drop its earlier proposal of forming a national committee of two members from the Central government and one representative each from two states. As per the existing system, separate selection committees need to be constituted every time there is a vacancy in state electricity regulatory commissions, disrupting their ability to perform their regular functions.

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