The growth in power subsidy ‘particularly alarming’

The growth in the power subsidy being provided by the State is “particularly alarming”, according to the White Paper on Tamil Nadu’s finances.

Observing that the subsidy now represented more than 1% of the Gross State Domestic Product (GSDP), the document explained the reasons for the increase in power subsidy. According to the figures of revised estimates for 2020-21, the average rate of realisation by the Tamil Nadu Generation and Distribution Corporation (Tangedco) was ₹6.7 per unit against the average cost of supply of ₹9.06 per unit, leaving a shortfall of ₹ 2.36.

As for the agriculture sector and domestic consumers, Tangedco was not getting the full subsidy payout for the energy sold to them. It had got a subsidy payout of ₹3.32 per unit for the farm sector and ₹1.09 per unit for the domestic category. While the recovery from the former was nil, it was ₹2.23 per unit from the latter. With 32,639 million units of electricity supplied to the domestic sector, the total loss on account of domestic supply was ₹18,735 crore during 2020-21.

Over the years, there had been a “steady decline” in Tangedco’s share in supply to industries. It was mainly due to the availability of alternatives, such as captive power plants and open access to third party consumers through power exchanges, which were cheaper than the industrial tariff of the utility that had, in turn, made Tamil Nadu “uncompetitive as an industrial destination”.

At the same time, on the revenue side, there had been no “revision of tariff” for the past seven years, the document said, adding that “as the focus was on short-term survival and cash management, huge liabilities had been created for the long term. A complete restructuring cannot be postponed much further.”

As for the overall subsidies that included food and transport apart from power, the document said the subsidies which amounted to ₹4,841.80 crore in 2006-07 (12.65% of total revenue expenditure and 1.48% of the GSDP) had reached ₹62,338.84 crore in 2020-21 (27.06% of TRE and 3.21% of the GSDP). Even if 2020-21 was an outlier year because of the COVID-19 pandemic, the subsidies had reached 19.5% of total revenue expenditure and 2.36% of the GSDP in 2018-19 itself.

As for food subsidy, a significant portion of the subsidy on rice was “actually met” through the framework of the National Food Security Act, 2013. In the State, rice was being given free to all rice card-holders under the public distribution system. It was the State that was meeting the “entire subsidy” on edible oil and tur dal, which were being supplied at subsidised prices. Advocating “urgent course correction measures for improved targeting and reorientation of subsidies to areas which enhance the public good and have positive externalities,” the White Paper said the cost effectiveness of alternative means of delivering financial assistance to stakeholders could also be explored without compromising on the delivery of essential commodities and services to vulnerable segments.