I have always wondered why my mom gets mad when I leave the AC on for 5 minutes, even when I’ve only left my room to do a few chores quickly. If electricity in Delhi was truly free, then why would she care?
Electricity in Delhi is subsidized and not entirely free for all. Households using up to 200 units get 100% subsidy, while those consuming between 201 and 400 units get 50% subsidy. Beyond 400 units, regular rates apply. These subsidies reached ₹3250 Crore in 2023-24, heavily burdening the state exchequer.
The numbers reveal a lot about the subsidies and their impact on citizens and the economy. These subsidies help lower-income households but strain the finances of the state exchequer.
Free Electricity System in Delhi Explained
1. Subsidy System in Delhi and Recent Unit Rates
The Delhi electricity subsidy scheme was launched by the Aam Aadmi Party (AAP) government in 2013. Initially, households that consumed up to 400 units of electricity were given a 50% subsidy.
This move aimed to provide basic facilities to lower—and mid-income groups. Later, in 2019, the government announced 100% free electricity for households that consumed up to 200 units.
For those who consumed between 201 and 400 units, they were given a 50% subsidy. The subsidy scheme became voluntary in October 2022. Therefore, only those who opt-in receive the subsidy.
During the 2024 budget speech, the government announced that this voluntary opt-in subsidy would be extended till March 2025.
BSES is one of the major electricity distribution companies in Delhi, and according to its Tariff structure.
The households that consume between 201 and 400 units of electricity will get a subsidy of up to ₹800 (according to BSES electricity bills).
Households that consume more than 400 units of electricity will not receive a subsidy. The charges will be ₹6.50/kWh for 401–800 units of electricity.
₹7/kWh will be charged for electricity consumption between 801 and 1200 units, and ₹8/kWh will be charged for electricity consumption of 1200+ units.
| Power Consumption | Unit Rate |
|---|---|
| 0-200 units | ₹3/kWh (100% subsidy) |
| 201-400 Units | ₹4.50/kWh (Subsidy up to ₹800) |
| 401-800 Units | ₹6.50/kWh (No Subsidy from here onwards) |
| 801-1200 Units | ₹7/kWh |
| 1200 + Units | ₹8/kWh |
Those not wanting to opt for the subsidy scheme will be charged according to BSES’s tariff structure.
2. Effects of Subsidy on the State Exchequer
The Delhi Government has a budget of ₹78,800 crore for 2023-24. Of this, it will spend ₹56,983 crore on revenue expenditures and ₹21,817 crore on capital expenditures.
₹53,565 crore of this revenue is generated from tax collection. In the 2023-24 budget, the allocation for the subsidies alone was ₹3250 crore.
This substantial figure puts a significant burden on the state exchequer. It’s worth noting that in 2019-20, the expenditure on subsidies was ₹3593 crore, marking an annualized increase of 14% from 2015-16.
This upward trend in subsidy costs is a cause for concern and warrants a closer examination of its impact on the state’s financial health. The expenditure on power subsidies has risen substantially since 2015.
Delhi’s population is also growing, and fuel prices keep fluctuating. In the long term, the continuous expansion of the subsidy program raises concerns about fiscal sustainability.
Taxpayers will not get higher returns for their taxes since more funds are allocated for revenue expenditures.
While the Delhi government has allocated 24.3% of its budget towards education and 14.3% towards healthcare, the allocation towards urban development, roads/bridges, and housing is comparatively lower.
Urban development will receive 6.5%, roads and bridges 4.6%, and the housing sector 0.4% of the total budget.
It’s crucial to maintain a balanced budget allocation to ensure that all sectors receive the necessary funding for their development. This fiscal responsibility is key to the state’s financial health.
Redirecting more money towards subsidies has an opportunity cost. These funds could instead be used to create long-term assets.
Building assets stimulates the economy by creating jobs and raising the standard of living. The state also gains more revenue in the long run.
For instance, if the government invests in building roads, it improves connectivity, making it easier for industries to grow, eventually generating higher returns for the government.
The state can also recover the costs by charging tolls, which ensures a steady revenue stream.
3. Electricity Rates for Industries and Commercial Users
Domestic and industrial users in Delhi have to pay different rates for electricity.
Non-domestic consumers in Delhi must pay ₹6/kVAh (Kilo Volt-Ampere per hour) for consumption up to 3 kVA and ₹8.50/kVAh for consumption above 3 kVA.
They also need to pay a fixed charge of ₹250/kVA/month. Industries in Delhi pay a fixed charge of ₹250/kVA/month and ₹7.75/kVAh.
Industries pay more than domestic consumers due to their higher power requirements. This is called cross-subsidization.
Since domestic users are charged less, the government has to balance the cost of power subsidies, and industries are charged more.
Industries also require an uninterrupted source of power with higher loads during peak hours.
To maintain a stable supply of electricity during those hours, they are made to pay more than the residential users.
4. Why is Cross-subsidisation an Issue?
Delhi’s economy is heavily skewed towards the service sector (tertiary sector), with over 80% coming from hospitality and financial services (Chapter 2, Section 3.2, page 23).
In stark contrast, the secondary sector, which includes manufacturing and production of goods, has the potential to contribute significantly more than its current 13%.
These figures underline the pressing need for policies that can unlock this growth potential in the secondary sector.
Since industries are charged more, this can reduce the competitiveness of the products manufactured in Delhi.
If a factory in Delhi produces pencils and sells them at ₹6, and another factory from Gujarat produces and sells them at ₹ 4, then the consumers would prefer the Gujarat pencils more.
To recover electricity costs, the Delhi industries would have to add the cost to the selling price of their pencils.
Well-established factories will somehow manage the higher electricity costs because they have the capital.
However, small and medium enterprises will be discouraged from establishing their businesses in Delhi, which can also hinder their growth.
(If you’re a budding entrepreneur and want to set up a business is Delhi, do check out my article ‘Business Ideas in Delhi‘ for profitable suggestions.)
Higher energy costs would eventually push these industries to other states with cheaper electricity rates. Since there will be fewer industries, the local economy of Delhi will be strained.
There will be fewer job opportunities, and the government will not receive more tax revenue. Cross-subsidisation affects the consumers too.
Since there will be very little production happening in Delhi, the consumers would have to rely on other states for a lot of goods.
This would significantly increase the cost of goods in Delhi and will cause inflation, directly impacting the cost of living in Delhi.