Why Kejriwal’s Free Electricity Promise Should Worry You

I’ve mentioned before that despite being a Modi supporter, I am secretly happy that the AAP beat the BJP in the Delhi elections. It’s been less than a month since they have taken over and are already talking about fulfilling their pre-election promises.

When I studied MBA, my favorite subjects were Managerial Economics and Business Strategy. I still don’t understand regression analysis well, but like to look at organizational and governmental decisions from the perspective of economics and strategy. And yes, like you, I’m an advocate of progress and development.

Economics has made me question one promise of Kejriwal in particular - free electricity. And I have quite a few grave reservations about it. Here’s why.

Let’s give AAP the benefit of doubt and assume that they won’t provide free electricity to all of Delhi, but will substantially lower tariffs. AAP has already asked for a coal block from the Central Government (I hope they bid for it instead of demanding it for free). This coal, they say, will be provided to a private firm that will produce 3,750 - 6,000 MW of electricity for Delhi. Is it just me or do you see something black in the lentils, too?

The Delhi Electricity Regulatory Commission (DERC) has already stated that prices need to increase to compensate companies producing electricity in Delhi. Now, on to the AAP’s proposal of reducing tariffs by 50%. To do so, the Delhi government will have to compensate these discoms with up to ₹2000 crore each year. Kejriwal kept saying that the Delhi treasury has ₹5,000 crore in it. Does he plan to dry the funds up within 2 years?

Another question is related to the behavior of us Indians. We’re probably the most irresponsible bunch of people ever. If the prices of electricity drop, Delhiites will leave ACs, lights and fans on all day. After all, why worry since the bill is so low, right? And not just Delhiites, any Indian would do it considering how much we care about anyone but ourselves. This will lead to wastage, and more demand for electricity, further leading to more demand for coal and other resources and invariably, more weight of subsidies on the shoulders of the Delhi government. And if Delhi gets free electricity, these issues will become even more rampant.  So the Delhi treasury may very well run dry in less than 2 years.

Increase in usage of air conditioners will increase air pollution. Kejriwal is already coughing his lungs out. Plus there will be no funds allocated for infrastructure development to reduce congestion. The result? Even more air pollution and poor road infrastructure. More people will cough like Kejriwal and encounter lung disorders. Who will invest in Delhi then? And without investment, where will jobs and better livelihood come from?

The free WiFi, if implemented will also take its toll on electricity production. Contrary to what you believe, WiFi will only be free for 30 minutes in Delhi, after which it will be chargeable. Routers, data warehouses and infrastructure are going to demand electricity, which further adds to the challenges mentioned in paragraph 4. Then again, do you think anyone will pay for WiFi after 30 minutes when they have mobile data and internet at home? I know you will say that free WiFi is on offer in Ahmedabad also, apart from other cities globally. But they don’t have to deal with the challenges that AAP will create. Plus their governments have alternate ways of generating revenue. What plan does the Delhi government have? Populism does not attracts investors.

Which brings us to yet another question. Does a government body need to earn revenue and profit? I say “Yes”. But then I am a ‘capitalist’, right? People like me are considered selfish, greedy and downright evil. Nehru thought so, and hence he was always against the business class - a belief that he drove in his daughter who further stifled our economy when we should have been growing. Apparently, Kejriwal thinks so too. Is the secret love between AAP and the Congress surprising, then? But you know one thing? No focus on generating revenue makes a company inefficient and unaccountable. The result? The demand for bailouts like from Air India. And who pays for AI’s inefficiency? You and me, through taxes. Taxes which should be deployed for growth and development, not to bail out a firm that can’t take care of itself and will continue to squander funds. The same concept applies to governments, whether local, statewide or national.

Populist measures have no place in a developing economy like ours. But they are what please us most. They make us feel secular and pro-poor and all inclusive. However, they offer momentary relief to some strata of people, but we are back to square one in no time. The way forward is pro-development measures. And asking people to be a part of it. The Central government has already started by letting people voluntarily opt out of LPG subsidies and keeping a buffer margin on fuel prices to compensate oil companies. While Modi is headed in the right direction, Kejriwal is headed in the opposite. Only time will tell who’s decision was right, but it mostly will be Modi whose decisions will stand vindicated. We need to think measures and policies from a dispassionate and economic perspective, rather than simply supporting it because we love the party.