Wealthy Households in Jharkhand Receive More Power Subsidy Than Poor Homes: Report

The report recommends states to identify appropriate context-specific solutions by tracking subsidy distribution

October 12, 2020


A report by the independent think tank – International Institute for Sustainable Development (IISD)- claims that Jharkhand’s wealthier homes enjoy more than twice the amount of power subsidies than poor households.

In its latest survey of over 900 homes in the state, IISD discovered that 61% of power subsidy among rural homes goes to the richest 2/5th households. Meanwhile, the poorest 2/5th families in rural Jharkhand only receive a 25% power subsidy.

Similarly, in urban Jharkhand, 2/5th of the wealthy homes received 60% power subsides, while 2/5th of the poor households received only 25%.

Distribution of Total SubsidiesAccording to the IISD report, the trend indicates that since wealthy homes can afford to consume more electricity, they get a larger share from the subsidy pie. According to the current tariff structure, homes consuming more than 800 kWh could receive four times the subsidy than homes that consume less than 50 kWh.

The report also recommends rationalizing subsidies for wealthy homes while focusing on poor households to restore balance to the subsidy distribution.

The report suggests that the Jharkhand government may immediately withdraw subsidies for homes that consume more than 300 kWh, while progressively reducing subsidies for families that consume between 50 kWh-200 kWh, and exclude homes that do not have ration cards.

By employing these methods, Jharkhand’s DISCOM can free up ₹3.06 billion (~$44 million). The savings could be reinvested in improving electricity supply or redirect it to support poor households consuming less than 50kWh.

Jharkhand’s state DISCOM, Jharkhand Bijli Vitran Nigam Limited (JBVNL), had already proposed a ‘one state, one tariff’ structure for FY 2021. The system will replace the increasing block tariff, albeit the subsidies will continue to be disbursed in slabs

IISD’s Jharkhand report may reflect a larger trend across India, where skewed residential electricity subsidies towards non-poor households and lack of good data are the norm.

In the financial year 2019, India’s electricity subsidies were ₹1,103.91 billion ($15.6 billion). Although subsidies are vital for poor households, DISCOMs are still struggling since tariffs are too low to cover costs, and the state does not fully compensate for the gap.

Price support is vital for low-income households, but, at the same time, distribution companies have been struggling financially. This has only worsened with the COVID-19 crisis, with DISCOMs unable to reduce their costs in proportion to reduced revenues. Covering the cost of supply is essential to expanding and improving the quality of electricity and transitioning to a more sustainable electricity mix. This has given rise to discussions about the potential for “subsidy targeting”: focusing subsidy benefits on those most in need while reducing them for better-off consumers, the report added.

The report recommends other states to identify appropriate context-specific solutions by tracking subsidy distribution, testing different models, and working together with agencies that maintain registries on poor households. It will ensure that energy access policies are fully aligned with good data.

In 2018, the World Bank had come forward with a $310 million loan assistance for Jharkhand. The agreement, signed between the World Bank, Jharkhand state government, and the Indian government, was to help provide reliable, quality, and affordable 24×7 electricity to the people of Jharkhand. The loan was sanctioned for the state under Jharkhand Power System Improvement Project.

Rahul is a staff reporter at Mercom India. Before entering the world of renewables, Rahul was head of the Gujarat bureau for The Quint. He has also worked for DNA Ahmedabad and Ahmedabad Mirror. Hailing from a banking and finance background, Rahul has also worked for JP Morgan Chase and State Bank of India. More articles from Rahul Nair.