The recent verdict of the Supreme Court regarding the Aadhar Act is indeed historical. Although, database privacy is a matter of concern and with India's top most court respecting it, from now on the private entities have been barred from using Aadhar for KYC authentication purpose. However, the use of Aadhar for welfare scheme has been hailed by the court. Justice Sikri said, "A lot of people who will benefit due to the inclusion cannot be denied due to the exclusion of a few; one can't throw the baby out with the bathwater."
The recent verdict was also hailed by the government, with Arun Jaitley, Finance Minister of India claiming how the linking of Aadhar curbed leakages to the extent of Rs 900 billion a year. If the government claims are right, then the question arises as to what is stopping India's largest consumer base, i.e., electricity consumers, to be linked with Aadhar? It will not only save the subsidy leakages but the consumer can avail Direct Benefit Transfer (DBT) too.
The electricity subsidy is driven by the states and is the largest welfare scheme which affects almost every household (especially the ones below the poverty line). In fact, subsidies are among the most powerful instruments for manipulation or balancing the growth rate of production and trade in various sectors and regions, and for an equitable distribution of income to protect the weaker sections of the society. However, when it comes to the power sector, the buck always stops at the State Electricity Boards. Be it wrongful inclusion or exclusion, the existing mechanism of subsidies often encourages utilities to abstain from billing accurately in certain cases, while they often also have low incentives to enhance the collections from highly subsidised customers.
At present, most of the state governments in India provide advance subsidy to the state-owned electricity distribution companies. To cite a few numbers, during 2014-15, of Rs 497 billion subsidy booked by the government, only Rs 424 billion subsidy was released. According to the rating agency ICRA, lower power tariff hikes by the state electricity regulators is expected to increase the dependence of electricity distribution companies (DISCOMs) on state subsidies by around 8 per cent year-on-year to Rs 850 billion in 2018-19.
First off, in order to make subsidy administration transparent, overcome the number of challenges in the existing mechanism and broaden the impact of financial inclusion so that the states may leverage Aadhar. The way Aadhar was utilised for LPG subsidies, on similar terms, it can be replicated for the power consumer, either through bank transfer or appropriate deduction from electricity bills. In fact, the country's apex planning agency, NITI Aayog is now working on the methodology as to how DBT mechanism will work in favour of the power sector when it comes to subsidy disbursal.
So going ahead, how will the consumer benefit from this concept? By implementing this concept, the state governments can empower and provide a choice directly to the beneficiaries. This will also add to the consumers delight upon receiving direct subsidy. In addition, SEBs will have the power to target non-paying consumers (where subsidies can be stopped). And lastly, the incentive compatible solution will bring about rationalisation in the electricity usage among customers as they would now understand the true financial burden.
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