Tue Feb 03 18:30:40 UTC 2026: ### Headline: Finance Commission Flags Tamil Nadu’s Free Electricity Scheme as Regressive

The Story:

The Sixteenth Finance Commission has identified Tamil Nadu’s free electricity scheme for domestic consumers as regressive, according to its main report (Volume I). The report cites the 2023-24 Household Consumption Expenditure Survey and an Asian Development Bank study, revealing that higher-income households (Q3 and Q4 quintiles) benefit disproportionately from the scheme compared to lower-income households (Q1 and Q2 quintiles). The Commission contrasts Tamil Nadu with states like Kerala, Goa, Gujarat, and Odisha, which target free power to specific vulnerable groups, achieving better outcomes with less fiscal impact.

Key Points:

  • The Sixteenth Finance Commission identifies Tamil Nadu’s electricity subsidy as regressive.
  • Households in the middle and higher-middle income groups (Q3 and Q4) benefit more than lower-income groups (Q1 and Q2).
  • Over 2.3 crore consumers in Tamil Nadu receive free electricity up to 100 units bimonthly, irrespective of their income level.
  • The estimated subsidy bill for the year 2025-26 is ₹7,752 crore.
  • Kerala, Goa, Gujarat, and Odisha target free power towards specific groups like SC/ST or low-consumption households.

Critical Analysis:

N/A

Key Takeaways:

  • The current free electricity scheme in Tamil Nadu is inefficient, benefiting higher-income groups more than intended.
  • Targeted subsidies, as practiced by other states, are more effective in reaching vulnerable populations with lower fiscal impact.
  • The Finance Commission’s report highlights the need for Tamil Nadu to reassess its subsidy policies for better resource allocation and social equity.
  • Data-driven analysis, such as the 2023-24 Household Consumption Expenditure Survey, is crucial in evaluating the effectiveness of welfare schemes.

Impact Analysis:

The Finance Commission’s findings could prompt the Tamil Nadu government to revise its free electricity policy. This could involve implementing stricter eligibility criteria based on income or consumption levels, targeting specific vulnerable groups, or adopting a tiered subsidy system. The long-term impact would be a more equitable distribution of resources, reduced fiscal burden on the state, and potentially improved infrastructure investment in the power sector. The report may also influence similar subsidy programs in other states, encouraging a shift towards more targeted and efficient welfare schemes.

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