Elite capture: residential tariff subsidies in India

India - home to one of the world's
largest populations without electricity access - has set the
ambitious goal of achieving universal electrification by
2017. 311 million people, a quarter of its population,
remains without power, despite substantial efforts to
increased affordable access for the poor. This study
focuses on India's residential electricity subsidies,
as viewed through a poverty lens. Addressing these issues
is especially urgent since the residential electricity
sector accounts for nearly a quarter of India's total
electricity consumption. Comparison of two survey rounds
(2004/05 and 2009/10) was used to assess changes in
electricity consumption over time. The study approach
analyzed subsidy distribution by both below poverty line
(BPL) and above poverty line (APL) grouping, as well as
income quintile, to allow for the wide variation in poverty
rates states. The key findings in this study are that 87
percent of subsidy payments go to APL households instead of
to the poor, and over half of subsidy payments are directed
to the richest two-fifths of households. Furthermore, these
estimates are conservative because they assume that BPL and
APL households are accurately identified. Because APL
households tend to consume more electricity, subsidies are
skewed toward the upper quintiles. The major driver of
these outcomes is tariff design. Few states have highly
concessional BPL tariffs; in most, all households are
eligible for a subsidy on at least a portion of their
monthly electricity consumption. Combined with the fact
that the poorest households consume relatively small amounts
of electricity means that wealthier consumers with
electricity access are typically eligible for just as much,
if not more, subsidy as poorer ones. India's states
have a variety of available options for improving their
subsidy performance. Certain states model good practices
that other states could consider adopting, for example,
Punjab, Sikkim, Chattisgarh, and others. States may
consider four model tariff structures that meet the twin,
medium-term policy goals of high subsidy targeting and low
cost. These are (i) creating BPL tariff schedules and
eliminating subsidies from other schedules, (ii) delivering
subsidies through cash transfers instead of tariffs, (iii)
creating a volume differentiated tariff (VDT), and (iv)
creating a lifeline tariff and removing subsidies from other tariffs.