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Will Saubhagya scheme resolve India’s power crisis?

In a mega power push, Prime Minister Narendra Modi unveiled Rs. 16,000 crore Pradhan Mantri Sahaj Bijli Har Ghar Yojana (Saubhagya) scheme to provide free electricity connections to over 4 crore poor families in villages. In a move to provide electricity to all households by December 2018, the Saubhagya scheme will cover 4 crore poor families. The hall mark of the scheme is that it will be largely funded by the centre and its cost will not be passed on to the poor. The move will see that all villages will be electrified by December this year. The scheme might prove to be a game changer ahead of assembly and general elections as our Prime Minister is pressing hard for the welfare of people all the time. New India will see that the lives of poor and the downtrodden lighted up and they can at last see light at the end of the tunnel after a long struggle.

Universal access to electricity has been a familiar and long-standing promise of governments at the Centre. Prime Minister Narendra Modi has signalled he is very serious about providing this by owning responsibility for its realisation.

The government aims to improve electricity access within villages that are already classified as “electrified”, according to the criterion that 10% of households enjoy access to electricity. However, the Saubhagya scheme does very little to address the real problem of affordability. In fact, by failing to account for illegal connections taken by households which find it difficult to afford legal access to power, government data on electricity accessibility understate penetration. A free electricity connection can ease the financial burden on the poor to some degree, but it will not address the recurring burden of power bills. The aim of improving affordability would require that supply be increased drastically to lower the price paid by retail consumers. Paradoxically, amidst the government’s claims that India is a power-surplus nation, the power generation utilities remain vastly under-utilised.

The plant load factor (PLF) of coal and lignite-based plants, an indicator of capacity utilisation of power generation units, has dropped consistently over the decade from 77.5% in 2009-10 to 59.88% in 2016-17, according to data from the Central Electricity Authority. This is due to demand for electricity from State distribution companies dropping in tandem with their deteriorating financial status. The Ujwal Discom Assurance Yojana (UDAY), introduced two years ago to restructure the debt of state distribution agencies has failed to address the root problem of populism in the pricing of electricity. In the absence of the freedom to sell at a profitable price, distribution agencies have had very little incentive to demand more electricity from power generators. This in turn holds back investment in power generation units. Saubhagya, unfortunately, does very little to address the fundamentals of India’s crippling power problem. Success of the scheme will require more than just budgetary fund allocation; it will depend largely on addressing structural issues that plague the broken power sector.

(The views expressed by the author in the article are his/her own.)

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