Chennai, May 31: All eyes are fixed on economic signals coming out of the new government in Delhi, but an upheaval is taking place in states where the elections have dealt a huge blow to the party in power.
Jayalalithaa in Tamil Nadu, where her party could not win a single seat, is leading the churning by changing colours overnight from a champion reformer to a freebie chief minister. In the process some established institutions, which had come up as part of the economic reforms, are falling by the wayside.
Today, she announced a rollback of power tariff for domestic consumers — some 117 lakh families — to the level prevailing in December 2001, a move that will cost the government Rs 910 crore a year. The Tamil Nadu Electricity Regulatory Commission, whose responsibility it is to set tariff, was ignored.
As reason for the decision, Jayalalithaa cited what she called numerous representations from people that the last round of increase had cast upon them a heavy burden.
Instead of saddling the state electricity board with the subsidy, the government will pick up the tab. “We will also indicate to the regulatory commission that the government will provide the subsidy amount to the Tamil Nadu Electricity Board on behalf of the domestic consumers for the reduced tariffs,” she said.
Huge sighs of relief might be exhaled at the electricity board, but the government’s finance officials went into a tizzy, wondering where the Rs 910 crore will come from. The state’s estimated fiscal deficit — the gap between expenditure and revenue — this year is Rs 6,922 crore.
The decision to subsidise domestic power consumption comes on top of a reversal of some other measures — taken after the election results became known — that will inflict a damage of Rs 200 crore on the government.
Jayalalithaa said no other state had handed down such largesse to domestic consumers. In Bengal, the Left government has erupted in anger at the latest regulatory commission order where the rates for domestic consumers have gone up as a consequence of efforts to cut the subsidy. The regulator’s tariff-fixing role is under challenge there, too.
In Jayalalithaa’s neighbouring Andhra Pradesh, the new Congress government assumed power with announcement of free electricity for farmers. The subsidy, worth Rs 436 crore a year, will be provided by the government. Free power came with a waiver of dues of Rs 1,200 crore.
As in Tamil Nadu, Andhra’s fiscal deficit is high at over Rs 7,300 crore.
Another state that had a reformist reputation — in keeping with the trend in the south — Karnataka has also changed governments, though the Congress returns to power in a coalition. The new government has just taken over. It’s early days yet.
Tamil Nadu became the first state to enact a Fiscal Responsibility Act with the objective of wiping out the fiscal deficit by 2008-09. Finance officials see today’s announcement as running contrary to that goal.
Some political parties have read the election verdict as a denouncement of reforms, triggering these retaliatory policy changes. Economists warn about the swell in fiscal deficit subsidies would cause, crippling the state’s ability to act as a stimulator of social development. The two interests were always in conflict, now even more so.