BJP's International and Subnational Energy Commitments: A Balancing Act

From the G20 leaders’ summit in New Delhi to the COP28 meetings in Dubai, climate and energy ranked top among India’s key priorities. Even the heated elections in five Indian states in November 2023 saw Prime Minister Modi’s Bharatiya Janata Party (BJP) making climate commitments in their manifestos. However, upon further exploration, there appear to be conflicts between BJP’s subnational and India’s international commitments. While satisfying voters and fulfilling manifesto promises is important for the BJP at the subnational level, the BJP government at the center must prioritize green policies to achieve its international targets and ensure the long-term sustainability of the green energy sector.

Promises

Internationally, the BJP-led government has promised that India will develop 500 GW of non-fossil energy capacity and will meet 50 percent of its energy requirements from renewable energy by 2030. Additionally, in Rajasthan, Madhya Pradesh, and Chhattisgarh, the BJP pledged electricity-related benefits in two ways: promises of subsidies and stability—and won an astounding majority. In Madhya Pradesh, the BJP committed to subsidize 100 units of electricity at ₹100 for each household; in Chhattisgarh, 24/7 power supply and relief from irregular electricity bills; and in Rajasthan, 24/7 electricity in domestic areas and continuous power supply for agriculture.

Delivering on these promises requires substantial fiscal infrastructure. The current state of energy finances in India is dismal, facing losses of about 15 percent in 2023. If fulfilled, election promises of free electricity will only worsen state finances, inhibiting India’s ability to meet its international goals.

Subsidies

When providing subsidies, state-owned distribution companies (discoms) bear the cost of electricity supply. The electricity supply chain involves power generation by generation companies (gencos), transmission companies (transcos), and discoms that are  responsible for supplying electricity to households. Typically, households pay the discoms, who then pay the generation companies based on their own procurement. However, when politicians promise electricity subsidies, they must pay the discoms the subsidized amount on behalf of the households. Unfortunately, this often does not occur or involve significant delays, leading to discoms accumulating debt.

For instance, in August 2022, 13 state-owned discoms, including those in Madhya Pradesh, Rajasthan, and Chhattisgarh, owed gencos $612 million (₹5,085 crore). Although some states have cleared their dues since then, this serves as a reminder of the precarious financial position of discoms.

Despite several decades of bailouts and reform programs, state-owned power discoms remain a substantial burden on the electricity supply chain and the country’s banking system. Increasing losses at the distribution level mean that discom dues to gencos continue to rise, delaying payments to coal mining businesses and negatively impacting the stability of the overall power sector. Discoms incur vast losses and struggle to recover the cost of energy supply.

Additionally, government subsidies create incentives for over-usage and wastage. For instance, in agricultural states like Punjab, Haryana, Rajasthan, and Gujarat, generous electricity subsidies incentivize the over-extraction of groundwater. By subsidizing electricity, the BJP might inadvertently increase electricity demand. Since 75 percent of India’s current power supply is from coal, an increased demand of electricity will increase fossil fuel dependance.

Stability and Energy Financing

As per the power ministry’s recently implemented late payment surcharge (LPS) regulations, if a distribution company fails to settle their unpaid balance within 45 days of the bill’s issuance, the generator will only provide 75 percent of the contracted electricity to the discom. This means that when state governments promise electricity subsidies but do not pay discoms in time, power supplies to voters could face disruptions. The promise of subsidized electricity could come in the way of stable and continuous electricity. This is in addition to the erratic power supply owing to infrastructure which cannot be upgraded due to poor cash flows.

Additionally, manifesto promises like 24/7 electricity and continuous power supply for agriculture either require fossil fuel reliance or long-term investments. Renewable energy power sources are less reliable due to changing weather conditions. For instance, solar energy, available during the day, requires supplementation with fossil fuels at night. To keep stable power supply pledges in states, the BJP presently will have to rely on coal since renewable energy storage is still nascent.

Investments in battery-based energy storage systems (BESS) can provide stability to renewable energy, and India has committed to BESS development despite its high cost. However, financing these promises remain a challenge. Spending money on subsidized electricity will impede investments and infrastructure in renewable energy generation capacity and storage, placing the BJPs subnational politicking at odds with international commitments.

Poor discom financial and operational health adversely affects the stability of the entire power sector. Furthermore, the precarious financing of the power sector jeopardizes India’s long-term renewable energy goals, underscoring the need for a balanced approach to meet short-term political objectives and green energy targets.

Smiti Mathur is an intern with the Chair in U.S.-India Policy Studies at the Center for Strategic and International Studies in Washington, D.C. She has a master’s degree in international relations from Johns Hopkins SAIS and a bachelor’s degree from Ashoka University, India. She has previously conducted research for organizations such as the University of Chicago, Ashoka University, Trivedi Centre for Political Data, and the Harvard South Asia Institute.