The Supreme Court on Thursday raised concerns about the fiscal sustainability of state-funded welfare schemes, particularly those involving free or subsidised electricity, while issuing notice in a challenge linked to the implementation of its earlier ruling in the BSES regulatory assets case.
The appeal arises from an order of the Appellate Tribunal for Electricity (APTEL), which, relying on the Supreme Court’s judgment in the BSES matter, initiated proceedings under Section 121 of the Electricity Act, 2003, to ensure liquidation of “regulatory assets”, the revenue gap between approved Annual Revenue Requirement (ARR) and actual tariff collections.
Senior Adv Gopal Subramaniam submitted that the State was absorbing the losses of its 100% state-owned utility, instead of passing on the burden to consumers.“From 2022 onwards, the State is absorbing these losses as its own. It is not a case of tariff evasion; the government is taking over the regulatory asset.”
The Bench of Chief Justice of India, Justice Surya Kant, Justice Joymalya Bagchi, and Justice Vipul M. Pancholi, however, voiced broader concerns about states funding expansive welfare schemes while running revenue deficits.
“We also do not want to cross our limits as to what welfare scheme a government should implement. That is for an elected government to decide…But our worry is this: the States are running in deficit and still distributing all this. From where is that money coming?”
The Court drew a distinction between targeted subsidies and blanket benefits. “If you decide to give free electricity to a particular section, that desire is not unwelcome. But without distinguishing between those who can afford and those who cannot, does it not create arbitrariness in fiscal administration?” the Bench asked.
Referring to practices across states, the Court remarked: “We are not talking about one State alone. This is happening pan-India. What kind of fiscal culture are we developing?”
The Bench underscored that under Section 65 of the Electricity Act, any subsidy must be provided upfront and factored into tariff determination. “If you wish to give subsidy, put it as part of your budgetary outlay and justify it. Tell the Commission in advance so it can be factored into the tariff. You cannot suddenly open the purse after the tariff is fixed,” the Court said.
The judges further expressed concern over the impact of blanket free power schemes on public finances and development priorities.
“Entire State revenues are going towards salaries and such schemes. Where is the money for hospitals, roads, irrigation, schools? Is it not high time for States to revisit this policy framework?…/There are children who cannot afford education, you must provide it. That is your constitutional duty. But there has to be equity in allocation of resources.”
The Supreme Court issued notice and sought assistance from the parties on the fiscal policies adopted by various states in funding such schemes. “Let the government place on affidavit how it proposes to fund these commitments,” the Bench Directed.
Appearances
Sr Adv Gopal Subramaniam