Punjab Chief Minister Hamza Shahbaz recently announced the Roshan Gharana Scheme, a government program for providing free electricity to households consuming 100 units or less. At face value, this is a great step by the Punjab government as it will provide some support to the most-vulnerable households, especially as inflation reaches a 13-year high in Pakistan. Still, a number of steps need to be taken in order to ensure that this support reaches the neediest segments and that these funds are not used for merely rewarding political workers.
Some economists have criticized this free electricity initiative, arguing that the IMF does not support the provision of energy subsidies and this may have a negative impact on Pakistan’s ongoing negotiations with the institution. These economists are wrong on two counts. First, the IMF only negotiates on fiscal deficit target with the federal government. Once a target has been agreed upon, the provincial governments are free to use their budgeted discretionary relief funds. Second, the IMF does not support blanket energy subsidies, indeed, but it has remained supportive of targeted subsidies on both food and energy for the most-vulnerable.
As such, free electricity is not a new idea. Across the border in India, the Aam Aadmi Party’s (AAP) government provides 200 units of free electricity to almost every household in Delhi. Now, after forming the government in the Indian state of Punjab, the AAP has also started providing 300 units of free electricity to every household and has promised a similar initiative if it comes to power in the Indian state of Gujarat.
However, CM Shahbaz’s initiative is different from the AAP model. Where every household is provided free electricity under AAP, only those households that consume 100 units or less will be able to enjoy this support under the Hamza model. This support will start immediately and is said to target 9 million households. Assuming 6 members per household, this support will eventually reach almost half the population of Pakistan’s most-populous province.
It appears that some facets of this initiative will require fine-tuning. If we assume the price of an electricity unit at PKR 20 then this means that providing free electricity to 9 million households would cost about PKR 18 billion per month. Given that the Punjab government, self-admittedly, has set aside PKR 100 billion for this relief initiative, it is evident that money to provide free electricity is not available for the entire year.
The Punjab government is either banking on the fact that the actual number of households that consume 100 units or less is far fewer than 9 million, or that free electricity will only be provided for peak summer months. Given rigid financial constraints, it would perhaps be wise to make free electricity contingent on need and not make it automatic for everyone consuming 100 units or less. It is entirely possible that there are some households that consume 100 units or less, but do not need free electricity.
There is now a lot of data available in Pakistan that can be used to verify households that actually need the free electricity. One way in which this could be done is through data triangulation, meaning that the government could use the BISP and National Socio-economic Registry (NSER) data to ensure that free electricity only reaches the most-needy.
Punjab government can also achieve some additional policy goals through this free electricity program just like Brazil uses Bolsa Familia, its conditional cash transfer program, to boost school attendance. The Punjab government, for instance, can require all adults in the household receiving free electricity to be vaccinated against Covid-19.
The Punjab government must also ensure full transparency since some concerns have already been raised about the timing of this initiative — as it is being launched immediately prior to by-elections. Some detractors argue that Hamza Shahbaz might use this initiative as a political quid pro quo. For this reason, and in the interest of transparency, this initiative should be monitored by a team that includes members of the opposition.
In sum, the Roshan Gharana Scheme is a much-needed policy initiative that will provide some relief to the most-vulnerable households, but it must be intelligently designed, carefully monitored, and sincerely implemented in order to obtain the maximum return-on-investment.