The electricity unadjusted quarterly adjustments have shot to Rs162 billion for just the second and third quarter of FY20. The revised inter disco tariff differential subsidy for FY20 also amounts to Rs162 billion. That is nearly Rs1.5 per unit on 105 billion units per year. For FY21, the budgeted amount is at Rs110 billion – which translates into Re1 per unit subsidy on account of inter-disco tariff differential.
But who cares if the numbers won’t add up? The budget exercise increasingly appears more of a constitutional requirement that needs to be done away with, than a well thought, well worked, statement of forward-looking accounts. While the revenues get more attention, and rightly so, for missing the target year after year – the biggest meaningful deviation on the expenditure front almost always comes from the subsidy front. No marks for guessing – almost the entire subsidy amount is related to the power sector, one way or the other.
Although, the power subsidy has somewhat tamed from yesteryears and so has the deviation from the budgeted figures, it could all be very different (for the worse) this time around. For the subsidy to be able to be sufficient – power tariffs will need to go up by at least another Rs3-4 per unit on an average.
Don’t forget by the time, the government decided to lift the freeze and rationalize the tariffs, two more quarters of unadjusted tariffs will have passed. This could add potentially another Rs150 billion (Rs1.4unit) to an amount of Rs162 billion already unadjusted. Then there will be the case of yearly base tariffs petition, which would surely seek higher increase in tariffs.
The situation at various discos has not drastically improved over the past 12 months – and to maintain a uniform tariff – the differential subsidy would surely be running north of Re1 per unit, as budgeted. Just a 10 percent increase in average uniform tariffs – would exhaust the subsidy, given that previous adjustments also have to be passed on.
Bear in mind the government will be yearning to get back on the growth path, for which it needs contribution from the industrial sector. There is nothing in the budget that makes allowance for any special industrial support package either. The government also intends to have an average inflation of 6.5 percent for FY21 – which won’t be possible with energy prices increasing within the budgeted subsidy. In all likelihood, the subsidy will be overrun substantially, and energy prices may not see a sizeable increase.