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Constituency-wise Manifestoes, their regulation and consequences

12 Mar

1 Introduction

Today’s Mint carries an article on how political parties have increasingly moved to a system of “localised” manifestoes for the 2014 general election. This is a significant trend that began with Aam Aadmi Party’s Delhi election campaign where it released local manifestoes for each assembly constituency (link). The BJP followed suit in Delhi, and according to news reports, is planning to do the same for the national elections (link). The Congress under Rahul Gandhi is sticking to one manifesto, but its leaders are making the right noises about making manifesto preparation a participatory process.

At the same time, the Election Commission of India has recently started regulating election manifestoes under its Model Code of Conduct pursuant to a Supreme Court judgement. It has stated that election manifestoes should explain the “rationale” for its proposals and how these proposals will be funded. Both these developments, (a) the localization of manifestoes, and (b) the regulation of manifestoes are significant markers for electoral democracy in India.

2 Local Manifestoes

Election manifestoes represent a charter of goals that political parties will strive to achieve if voted into power. The adoption of a system of local manifestoes is both exciting as a tool of political participation, and worrying if one pauses to think of how the aggregation of local manifestoes will work to inform a national government.

On the one hand, this localization process is heartening. Indian political parties seem to be involving the electorate directly in the preparation of manifestoes, and paying greater attention to their voices. This is a marked departure from a process where, as Mint states, “a group of leaders would discuss and determine the content of the manifesto.” AAP has clearly brought in an innovative idea for running political campaigns, and it is being tested by both BJP and the Congress. It makes manifestoes more relevant, and increases (to at least some extent), the level of accountability of elected leaders as voters may have greater recollection of a local manifesto than a national one. If developed properly, this system of local manifestoes could also help make elections more issue-based, albeit at a level where local issues are more relevant. It could also improve the transmission of political messages from voters to politicians by giving the latter a clear charter to try and implement, rather than be a passive responder to powerful local interest groups.

However, while democracy is about representation, but it is also about leadership. The benefit of a centralized process of making a manifesto is that a political party takes an a priori call on what it stands for, and wishes to achieve. This manifesto can then be tempered once voters respond to the manifesto during the campaign. However, here the process of political communication emphasizes leadership and vision. It allows political parties to communicate what they stand for, rather than just try and respond to every constituency’s preference. Incorporating a process where manifesto preparation is completely decentralized creates a risk of parties losing sight of any non-negotiable principles they may stand for.

Obviously, both these arguments assume that it political parties will follow only one of these two approaches, while most political campaigns are likely a blend of both central decision-making and feedback from local constituencies. And given the inordinate amount of power leaders of political parties enjoy, a decentralized process may be the best thing to have occurred in electoral democracy recently. “Garibi hatao” was enormously successful for Indira Gandhi, but it is debatable whether she would have come up with it if the commnication of voter preferences were better. Ditto for NDA’s unsuccessful “India shining” campaign.

Lastly, this argument pre-supposes that political parties and voters take manifestoes seriously! It is in this context that the recent judgement of the Supreme Court (linked above), and the consequent actions of the Election Commission are so significant.

3 Regulation of election manifestoes

The Election Commission has brought election manifestoes under the Model Code of Conduct. In para 3 of “VIII Guidelines on Election Manifestos” of the MCC, the EC states:

(i) The election manifesto shall not contain anything repugnant to the ideals and principles enshrined in the Constitution and further that it shall be consistent with the letter and spirit of other provisions of Model Code of Conduct. (ii) The Directive Principles of State Policy enshrined in the Constitution enjoin upon the State to frame various welfare measures for the citizens and therefore there can be no objection to the promise of such welfare measures in election manifestos. However, political parties should avoid making those promises which are likely to vitiate the purity of the election process or exert undue influence on the voters in exercising their franchise. (iii) In the interest of transparency, level playing field and credibility of promises, it is expected that manifestos also reflect the rationale for the promises and broadly indicate the ways and means to meet the financial requirements for it. Trust of voters should be sought only on those promises which are possible to be fulfilled.

Para (iii) is extremely significant. It requires political parties, for the first time, to (a) explain the reason why the political party is making a particular promise, and (b) explain what resources, including finances it will utilise to fulfill these promises. This is extremely important for the following reasons:

  1. Political parties will have to explain why they want to do something. Ensuring they give proper reasons for wanting to do something will make it more difficult to throw in mindless freebies without any justification. Also, it will reduce room for ideological inconsistencies. Since they have to provide rationales for every promise, it will lead to greater scrutiny of the political party’s overall philosophy, and therefore require parties to think harder about what to put in the manifesto. Lastly, it will reduce incentives to throw in a laundry list of promises without any intention of fulfilling them. Manifestoes have to be readable documents and they have to help the political campaign project an easily communicable message. To ensure this is maintained, the process of picking what to promise will become more selective once the reasons for the promises also have to be included.
  2. Political parties will have to explain what financial resources will be used to achieve its promises. Even if at present they have to only “broadly indicate” how they wil do so, it is a milestone in nudging political parties towards being fiscally responsible. If a political party wants to spend 25% of the country’s budget on defence, it will have to show how it intends to also deliver on its promise of giving everyone free hospitals, food, television sets, electricity, water and the like at the same time. Even if the average voter is not concerned with these issues to start off, it will lead to greater expert and media scrutiny of election promises. We can at least begin to aspire for substantive debates on poll-promises rather than a game of upmanship based on who can promise how much.

 

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AAP Governance:The dangerous and regressive fight over Electricity pricing

6 Feb

Introduction

The Aam Aadmi Party led Delhi Government has (link) slashed power tariffs in Delhi, and is in the midst of an ongoing tussle (link) with Reliance owned discom BSES over the supply of electricity in certain parts of Delhi. The AAP, even before taking the reins of the Delhi Government had long accused the Delhi discoms of overcharging consumers, and had demanded an audit into their activities, something they have now initiated (link).

Meanwhile, Delhi’s electricity regulator, the Delhi Electricity Regulatory Commission (DERC) has raised tariffs (link), and also stated that the Delhi Government cannot “cannot interfere in fixing tariff” (link).

What is going on here? On the one hand is the claim by the AAP Government that discoms are over-charging consumers. They seek to resolve this issue by (a) asking discoms to reduce tariffs by 50 percent, and (b) asking the CAG to audit the discoms to see whether they are overcharging. Added to this mix is the DERC which states that the Delhi Government has no power to reduce tariffs. It can only subsidize consumers if it wants. There is a complex legal and regulatory framework with a complex history that needs to be understood here.

 

Electricity regulation in the past

“Electricity” is an entry in List III (Concurrent List) of the Seventh Schedule of the Indian Constitution. This means that electricity can be regulated by both the states and the Central Government. How this works in practice is that purely intra-state generation, production, distribution and consumption of electricity is regulated by the state. Any inter-state aspect of this process is regulated by the Central Government. For example, if a power distribution company in Delhi buys power from a generation company that sells power to 4-5 other states, the terms of the purchase will be regulated by the Central Government.

Until about 10 years ago, electricity distribution in most states was run by state-owned companies (one may remember the infamous DESU in Delhi). Electricity distribution in many states is still run by state-owned companies, but many states have privatised this function to a large extent. More importantly, the process of fixing tariffs for electricity has changed. Why?

State governments have an obvious incentive to keep power prices low. It is a sop given to consumers who then vote for the party in government. How this was being done was broadly the following: the state government would direct the state-owned electricity distribution company to keep electricity prices artificially low. The company would consequently be charging consumers a price lower than the cost of providing them electricity. Since the company never recovered the cost of providing electricity, it basically provided poor quality of electricity. They were essentially loss-making entities, being told by the state government to keep operating as loss-making companies to subsidise consumers. The consequences were poor quality of electricity, and lack of expansion of the electricity supply to all segments of the population.

Most importantly, and conveniently for state governments, the loss from under-charging consumers was borne by the distribution company, and not the state government. State governments, rarely transferred the difference between the cost and the price being charged to the distribution company. So even though discoms became more and more financially unviable, state governments never suffered any financial consequences. They could therefore afford to get away while being fiscally irresponsible, and consumers got low quality electricity at low prices.

Parliament’s Standing Committee on Energy noted in 2002(link):

 

“…tariffs not related to costs of operation, the inefficient operational phases and nearly 50% of the energy consumed not metered which go towards agricultural consumption, hut lighting, T&D losses and pilferage. T&D losses reported by many SEBs are fudged figures. There is free or subsidised power supply and absence of commercial outlook. Political intervention in decision-making by SEBs is rampant. Shortage of power and energy is perennial. There was lack of clear cut policies, organisational purpose, control or responsibility and frequent change of leadership. This is coupled with overstaffing and low productivity and revenue earning distribution function totally neglected.”

 

So what changed?

The condition of discoms throughout the country became acute by the mid-1990s. This extract is from a debate in Parliament in 1998 (link):

 

“…we are today in a critical financial situation in the power sector…I have already explained about the poor and fast deteriorating financial health of the SEBs [State Electricity Boards]. With their finances fast getting eroded, the SEBs will find it difficult to realise any improvement in their operational performance and unless their financial condition improves, they may not be able to realise even the limited capacity addition programme that is now envisaged in the State sector during the next four to five years…In short, if the present scenario of the power sector is allowed to continue, the ability of the SEBs to provide adequate electricity in a reliable manner to the consumers will fast get eroded…”

Starting in 1998, efforts were made to create independent regulators in the electricity sector. These regulators were intended to be independent bodies that would set power prices in a technocratic manner, and be independent of political pressures. This would help discoms charge the cost-price of electricity and make the sector financially viable.

At the same time, a slow process of privatisation of electricity generation and distribution was also initiated. By 2006, the National Electricity Policy of the Central Government explicitly stated that there was a need to attract private investments into the power sector (link)

“…It is therefore essential to attract adequate investments in the power sector by providing appropriate return on investment as budgetary resources of the Central and State Governments are incapable of providing the requisite funds…”

Private investors require certainty and clarity. Unlike discoms owned by states and the Central Government, they are unable to absorb losses on an endless basis. They therefore require a proper, technical mechanism of price fixation, and require that the government will stand by the price fixed by it. This was the reason for setting up independent regulators.

 

Electricity Act and Independent Regulators

In 2003, Parliament passed the Electricity Act (Act) (link). The Act set up independent regulators at the Central (The Central Electricity Regulatory Commission or CERCs) and state levels (SERCs). The Act allows the “Appropriate Commission” to determine tariff according to certain principles laid down in the Act.1 These include keeping in mind that the generation, distribution and supply of electricity is done on “commercial principles”, competition, rewarding efficiency in performance, safeguarding consumer interest, etc. It also stated that tariffs cannot be amended more than once during a year.2 Importantly, the Act states that if the State Government requires a discom to provide a direct subsidy to consumers, the state government will compensate the discom in advance.3

The CERC and SERCs are therefore established as independent bodies, and one of their major functions is to regulate the tariff of electricity. The Act also set up an Appellate Tribunal for Electricity (APTEL). APTEL hears appeals from all orders of the CERC and the SERCs, including orders that fix tariff. State governments and discoms can appeal against orders of the CERC and SERCs if they feel the order is inadequate.

There was thus a very conscious move towards creating a legal framework where electricity prices were to be set by an independent body acting in a technocratic manner. It was hoped that this would lead to private investment and competition, and create a more efficient power sector in India.

State of the power sector today

The provisions of the Electricity Act, 2003 have not been implemented in letter and spirit. Electricity tariffs are not revised and set properly, SERCs are not independent enough, and state governments have done a half-hearted job of privatizing the state-owned discoms. The Chairman, CERC told Parliament’s Standing Committee on Energy in 2012 that the state of State Electricity Boards (SEBs or discoms) is almost as bad as it was in 1998.4 The Tamil Nadu State Electricity Board was reported to be bankrupt (in 2011) (link).

The CERC Chairman told Parliament’s Standing Committee on Energy in 2012 that:

“There are State Commissions which have not rationalised tariff for seven to eight years and there, even if they had taken up any kind of rationalisation exercise, it had been more of a formality. All this has contributed to the Electricity Boards coming back to the situation which they were in 2001 and probably getting worse”5

In response to a question raised in Parliament, the Power Minister stated that the situation of state owned power companies was so bad, that,

“A scheme for Financial restructuring of Discoms has been approved recently (October, 2012) with objective to enable the State Governments and the Discoms to carve out a strategy for the financial turnaround of the distribution companies in the State power sector which will be enabled by the lenders agreeing to restructure/reschedule the existing short-term debt…”6

The answer clearly lies in a continued move towards more technocratic tariff setting, and getting state governments to cede control over state-owned discoms/privatise the electricity sector. It is in this context that we must study the conflicts over the prices of electricity in Delhi.

The Delhi electricity price fight

Delhi privatised its electricity distribution some time in 2002 (link) As per a news report, during the last 10 years, “cost of power has increased 300%, mainly because of higher coal prices and a rise in the financing charges due to higher interest rates, while the rate at which it is sold to retail consumers has increased by only 70% during the period…” (link). Whether the increase in prices is correct needs to be determined through a process of audits and reviews. However, some points need to be made:

 

  1. Electricity prices in Delhi are set by the Delhi Electricity Regulatory Commission (DERC), and not by the Discoms or the State Government. The DERC follows an extremely transparent method of determining tariffs. It involves stakeholders in every stage of this tariff determination process (a recent order can be accessed here).
  2. The Delhi Government is legally not permitted to direct discoms or the DERC to reduce tariffs. The reduction or increase in tariffs is dependent on the process followed by the DERC under the Electricity Act, 2003.
  3. If the Delhi Government thinks the DERC has erred in setting the tariff, it is free to go to the APTEL and challenge DERC’s order.
  4. It is free to order an audit of the discoms, and then take a decision on the functioning of these discoms after the results of the audit are published.
  5. If the Delhi Government still thinks that the electricity prices are too high, it is free to subsidise consumers. There is however, one crucial difference between a subsidy the Delhi Government would give now, as opposed to before discoms in Delhi were privatized. Before privatization, the Delhi Government could have forced state-owned discoms to absorb the losses. Today, the burden of funding this subsidy has to be borne by the Delhi Government. According to news reports, this subsidy will force the government to cough up an additional Rs. 201 crore in the lastquarter of 2013-14… (link). This subsidy is apparently being paid for by scrapping infrastructure projects. Notably, there is no rational basis (yet) for claiming that electricity is over-priced by 50 percent. And as pointed out earlier, even after all the tariff hikes in the recent past, the cost of electricity in Delhi is far higher than what consumers pay for it.

As point 5 shows, once the government bears the burden of the subsidy, taxpayers have a very real stake in the game. We may decide that it is fine for the government to subsidise electricity. But at what cost? We are discussing not just a financial cost, but the cost of trying to bulldoze legal institutions such as the DERC into submission on the basis of a simplistic claim of corruption without any actual evidence (yet) of over-priced electricity. We are also discussing the cost of going back to a regressive era where we consumers received poor quality electricity at low prices because elected governments were playing a cynical game of charging less for less. The current fight over electricity pricing goes to the heart of what kind of institutions we build for the future.

 

————

1. Section 61

2. S. 62

3. S. 65

4. Oral evidence of Chairman, CERC to Standing Committee on Energy in its 30th Report on Functioning of Central Electricity Regulatory Commission (CERC), August 2012.

5. Ibid.

6. Unstarred question no.1635 on Provision of electricity at economical rate, by Shri Wakchaure Bhausaheb Rajaram, answered on 07.03.2013, Lok Sabha.

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