To
Shri Pinarayi Vijayan
Chief Minister
Kerala
Respected Chief Minister,
I understand that the Union Ministry of Power has undertaken a Centrally Sponsored Scheme (CSS) to provide grants to the States for installing smart meters to be installed at the consumers’ premises, as a part of the Ministry’s “reform” measures. The model touted by the Ministry is heavily tilted in favour of private players for supplying, installing and maintaining smart meters. The Ministry claims that the installation of smart meters will result in an overall improvement in the technical and financial performance of State electricity utilities, yielding significant revenue savings.
As per indications available from other States engaged in the installation of smart meters, the costs involved are high and the process would impose a tariff burden on the consumers. Strictly, if all the electricity distribution companies do save revenue by installing such smart meters and pass on a corresponding benefit to the consumers, there is no justification for the process resulting in the imposition of a tariff burden on the consumers.
While metering electricity supply at the consumer’s end can yield some benefits, its viability critically depends on the cost of meters and their maintenance.
The unit cost of smart meters and the amounts charged for installing and maintaining them by private companies in India are exorbitantly high and they are far in excess of the benefits expected, which in turn explains why it results in a tariff increase for the consumers. Had a realistic cost-benefit analysis been carried out, it would have clearly shown that, at the high cost at which smart meters are available today in India, the costs far exceed the perceived benefits. Some reputed expert institutions have indeed carried out such studies which indicate that, at the high cost at which smart meters are available in India at present, there will be no net advantage in installing them. The only gainers in the process would be a few private companies, certainly not the power utilities, nor the consumers!
In preference to the installation of smart meters, there are several other more advantageous reforms that individual States have proposed, which will result in an overall improvement in the finances of State power utilities and consequent benefits to consumers. Instead of imposing smart meters on the States, the Union Power Ministry should have allowed each State to undertake State-specific reform measures of their own preference and provided assistance for the same. Considering that fiscal resources with the Centre and the States are scarce, it is necessary to prioritise investments in line with the expected returns.
I understand that the Kerala government has mooted a proposal to renovate its electricity distribution segment for which an investment of Rs 11,000 Crores would be needed. Perhaps, the State Power department has approached the Union Power Ministry for assistance. If The State government shows reluctance to accept the expensive option of smart meters, they may face the risk of losing Rs 9,000 Crores of grant assistance from the the Power Ministry and the latter may even refuse to provide assistance for the State’s preferred proposal to renovate the distribution segment (https://english.mathrubhumi.com/news/kerala/decision-to-pull-out-smart-meter-project-kerala-will-lose-grants-worth-rs-9000-crores-1.8757445)
In a way, this typifies how the Centre is imposing schemes on the States in the name of CSSs, overriding the States’ own priorities, in violation of the letter and the spirit of federalism.
In this connection, I invite your attention to my earlier letter dated 22-2-2023 on the manner in which the Centre has, over the last nine years or so, reduced the proportion of the divisible pool of tax resources which the Finance Commission allocates under Article 280 of the Constitution equitably between the Centre and the States in line with their respective liabilities and increased the proportion that the Centre can allocate according to its own priorities under Article 282 (https://countercurrents.org/2023/02/centres-onslaught-on-federalism-time-to-come-together-and-resist/)
The 15th Finance Commission referred to the resource-expenditure asymmetry between the Union and the States. While the shares of the Union and the States in resources are around 63% and 37% respectively, the corresponding shares in expenditure are around 38% and 62%. There is thus a need to correct this asymmetry by increasing the States’ share in resources, a concern that is addressed by the successive Finance Commissions (FCs). In fact, the 15th FC did take note of this and recommended an increased share, though marginal, in tax receipts to be devolved to the States. Increasing the States’ share in divisible resources would allow them to invest funds in line with their own priorities, whereas, if funds are to be channelled through Article 282, it will leave little freedom for the States to invest according to their preference. In a country like ours characterised by a wide range of diversity, the imposition of a uniform set of priorities by the Centre would not be desirable.
In 2014-15, the share of FC-based fund transfers, in proportion to the total funds transferred to the States, was 49%. In contrast, the share of FC-based funds transferred to the States shrank steeply to 8.9% as per the 2023-24 Budget estimates. In other words, the Centre, by diverting an increasing portion of the national tax receipts from the FC-related divisible pool, is moving away from an equitable entitlement-based allocation of resources among the States towards a more subjective, unilateral way of allocating resources, which tends to increase the political clout of the Central leadership at the cost of the States.
The case of the smart meters proposal of the Centre typifies the above generic concern that the States should address urgently. In recent times, the Centre has made several unilateral moves that tend to reduce the political space available to the States in violation of the spirit of federalism that lies at the core of our Constitution. Unless the States collectively resist such moves, the delicate political balance that exists between the Centre and the States is likely to get disturbed. Federalism is a part of the basic structure of the Constitution and it should not be allowed to be interfered with.
May I appeal to the State Chief Ministers to take up this issue collectively so as to bring pressure on the Centre to respect the Constitutional values and not to do anything that violates the spirit of federalism?
This is a matter on which all political parties, both national and regional, should act urgently.
Regards,
Yours sincerely,
E A S Sarma
Former Secretary to the Government of India
Visakhapatnam
