Of Free Televisions and Outcomes - How We Miss the Woods for the Trees

- January 01, 2024

Erstwhile Chief Minister of Tamil Nadu, K. Karunanidhi, launching the free colour TV scheme in 2006 (source: Rediff)

Recently, a storm unleashed itself on Twitter, as a famous YouTuber came on a popular podcast and made a bizarre claim. Free television distribution, it seems, led to improvement in the outcomes of women. And that is good economics.

While I don't watch things all the time, what caught my fancy was the defence of the absurdity since. One journal paper was quoted by the YouTuber in question, and was touted as proof of good economics also being associated with freebies.

Again, I usually don't comment on freebies, because I think all freebies as a rule are bad. Freebies raise the cost of service across the economy, create greater entry barriers for the poor that they are supposed to serve, and eventually distract from actual welfare spending on such issues as healthcare and education. However, the absurdity on this was so high that I wanted to write for a change.

On looking at the financials of the state owned generation and distribution utility, the Tamil Nadu Generation and Distribution Company Limited (TANGEDCO) had inherited losses of ₹10,295 crore from the erstwhile Tamil Nadu Electricity Board (TNEB) as of 2009-10. So what was the scenario prior to that? For that, one needs to look at the tariff orders of the state in the pre-TANGEDCO era. For that, one can visit the Tamil Nadu Electricity Regulatory Commission (TNERC) website. However, given how the site was down on 1 January 2024, it made sense scanning back in the news domain to check for the ground situation. And here's what we find.

November 2008 witnessed a report in the Times of India, stating that the TNEB's balance sheet was an alarming read. For the year 2007-08, TNEB's revenue expenditure was ₹23,950 crore, while its income was ₹19,240 crore.

This resulted in a revenue shortfall of about ₹4,730 crore. Contrast this with the shortfalls in the previous years, that were also reported in the same story. (Please note that the chart below includes for TANGEDCO's creation in 2010-11 and also takes into account profit/loss without subsidy).

Thus, the cumulative losses for the years 2005-06 to 2009-10 alone amounted to over ₹31,814 crore. Assuming the loss base to be ₹1,220 crore annually, we can say that an additional cumulative loss of ₹26,934 crore was witnessed in the years 2006-2011.

Now, note that this coincides with the trend of providing free television sets, which were first announced in the year 2006 Assembly elections, and implemented from September 2006, the launch date being the same as CN Annadurai's birthday.

It must be pointed out that during their tenure, the Karunanidhi led DMK government spent around ₹3,687 crore in the five years in its 2006-2011 regime to purchase 10.64 million television sets. The average cost of a television set was about ₹2,265 purchased by ELCOT (Electronics Corporation of Tamil Nadu Limited). The scheme was scrapped only in 2011, when the government was voted out and a vindictive J Jayalalithaa led government went into overdrive to scrap a series of freebie schemes of the previous regime (ironically to usher in her own).

Of course, Tamil Nadu's electricity consumption grew rapidly during this period, so all of it cannot be attributed to free TVs. But let us assume the power demand on an average at 70 Watts and a TV running for five hours a day. This means that annually (assuming all things constant), televisions cumulatively added free power demand of 1,365 GWh per year in 2010-11. This meant that, given the revenue gap of ₹2.3/unit that year, the state government literally lost ₹314 crore due to TVs in 2010-11 alone. Adding this into the cost of procurement and factoring for the staggered procurement (60% share reached in 2009-10, 40% in the year before, 20% in 2007-08 and 10% in 2006-07), one can safely say that the scheme was a ₹4,409 crore loss to the exchequer.

Of course, the political investment was excellent. Sun TV became the market dominator, as it was beamed for free by the DMK group's Maran family. Propaganda could reach its peak. From that perspective, it was definitely cheaper than giving free power to farmers.

However, one wonders why such money wastage is acceptable, especially when in December 2023, the DMK government sought ₹5,000 crore from the Centre for relief assistance in the wake of Cyclone Michaung. This is something for the government to think about - ₹4,400 crore was the value that year. If one were to use a 5.5% discount value, one can safely say that it amounts to at least ₹7,900 crore as of 2022. Or for that matter, the present value is over 83% of the state's 2023-24 budgetary expenditure estimate for rural development.