This news article is two part series. Part-II is published today. Part-I can be read here.
The debate over electricity tariffs and distribution losses takes us only halfway towards understanding Kashmir’s power problem.
There is a larger economic question that Jammu and Kashmir has never satisfactorily resolved: Who owns the economic value of Kashmir’s rivers?
Kashmir is not merely a consumer of electricity. Its rivers are among its greatest natural assets.
The Chenab, Jhelum and other river systems possess enormous hydropower potential. Major projects have been built on these waters, generating electricity for the wider Indian power system.
The people of Kashmir have consequently watched an extraordinary paradox unfold.
Their rivers generate electricity. Electricity leaves the territory and enters the wider power system. J&K receives a defined share of power and other benefits under different arrangements. Yet people living in the territory can still face rising electricity bills.
This is no longer merely a tariff question. It is a resource-economics question.
The demand for the return of hydropower projects to Jammu and Kashmir has surfaced repeatedly over the years.
Different projects are governed by different legal and contractual arrangements, and they should not be casually lumped together. Nevertheless, the political and economic demand for greater control over projects built on J&K’s water resources is longstanding.
Arrangements concerning newer projects, for example, have provided J&K with a 12 per cent free-power share. The 2021 arrangements relating to certain NHPC projects also included provisions concerning the eventual handover of projects after a specified operating period.
There have simultaneously been longstanding demands for the return of older projects such as Salal and Dulhasti and for a larger free-power share.
In 2014, Omar Abdullah publicly argued that the free-power quota should be increased from 12 per cent to 30 per cent.
Whatever position one takes on the complicated legal history of individual projects, one economic principle is difficult to dispute:
A resource-producing territory should receive a meaningful economic dividend from the exploitation of its natural resources.
This principle is recognised around the world in different forms. Oil-producing regions receive royalties. Mining regions negotiate fiscal benefits.
Hydropower-producing territories receive electricity, royalties, taxes or other forms of compensation. Why should Kashmir’s water resources be treated differently?
Kashmir Electricity Resource Dividend
This brings me to a proposition that may initially sound radical.
Kashmir should be entitled to free or exceptionally low-cost electricity for basic household consumption.
I am not suggesting that every unit consumed by every consumer, regardless of quantity, should be free. That would be economically irresponsible.
Nor am I suggesting that the distribution utility should be deprived of the revenue needed to maintain and modernise its network. My proposition is different.
Jammu and Kashmir should establish an Electricity Resource Dividend.
Every household could receive a defined basic quantity of electricity free of charge or at a nominal tariff. Consumption above that entitlement could be charged progressively.
Productive sectors such as horticulture, food processing, cold storage, handicrafts, tourism and selected industries could receive preferential electricity tariffs.
Large commercial consumers could pay closer to the economic cost of supply.
The principle is straightforward: Basic electricity should be treated as a social and resource dividend. Excessive consumption should be treated as a commercial service.
This is not an argument against cost recovery. It is an argument about who should bear that cost and who should receive the benefit of Kashmir’s natural-resource wealth.
An obvious objection will arise. How can electricity be supplied below its generation cost?
The answer lies in distinguishing the accounting cost of generation from the economic value of the natural resource to the territory from which it originates.
If Kashmir's people are entitled to a resource dividend from their rivers, that dividend can offset part of the cost of supplying electricity to residents.
Suppose electricity is generated at a particular cost. The territory’s resource dividend could effectively offset part of that cost.
The consumer could therefore receive electricity below the accounting generation cost while the system remained financially compensated through the value of the resource retained by the territory.
There is nothing economically impossible about this. It is ultimately a question of how resource rent is distributed.
Indeed, the existing system already recognises a territorial principle because J&K receives a share of free power from hydropower projects located within the territory.
The real questions are whether that share is sufficient and how it should be used. Should free power merely become another source of general government revenue?
Or should part of its value deliberately become a direct electricity dividend for the people? I believe the latter deserves serious consideration.
Rethink Electricity Policy
There is another compelling reason to rethink electricity policy.
For years we have discussed Kashmir’s horticulture, tourism, handicrafts, food processing and other sectors.
All of them require energy. A modern horticulture economy requires cold chains, controlled-atmosphere storage, grading and packaging facilities, food processing, refrigeration, transport infrastructure and digital systems.
Modern tourism requires reliable electricity. Small manufacturing requires electricity. Information technology requires reliable power.
Electric transport requires electricity. If Kashmir possesses a natural advantage in hydropower, that should become an industrial advantage.
Affordable electricity should be viewed not simply as a commodity purchased by consumers but as one of the foundations of Kashmir’s economic transformation.
This is what moving from an economy of extraction towards an economy of value should mean.
The important question is no longer simply how much electricity Kashmir produces.
It is how much additional economic value Kashmir can create because it possesses that electricity.
There is nothing unusual about asking electricity policy to balance competing objectives.
International experience shows a continuing tension between cost recovery, investment, efficiency and affordability. The World Bank has examined this challenge extensively, recognising that tariff structures must balance the financial viability of utilities with consumers’ ability to pay.
The international direction is also increasingly towards accurate energy accounting.
India itself is investing heavily in smart meters, feeder metering, distribution-transformer metering and modernised networks. Indian AT&C losses have fallen substantially over the past decade.
The lesson for Kashmir is not that electricity should remain permanently subsidised regardless of cost.
Nor is it that consumers should automatically pay whatever tariff a utility requires.
The lesson is to measure everything, reduce avoidable losses, recover legitimate costs efficiently, protect basic consumption and ensure that natural-resource wealth benefits the people of the territory from which it originates.
Kashmir’s circumstances require something beyond ordinary utility reform.
Its hydropower resources should generate a Kashmir Power Dividend with three principal components.
First should come a household electricity dividend.
Every household should receive a defined basic quantity of electricity free or at a nominal price. The entitlement could take account of the Valley’s severe winters and the additional electricity required for heating, as households in other cold regions around the world receive appropriate support for their winter energy requirements.
Second should come a productive-economy tariff.
Electricity should be deliberately affordable for sectors that add value to Kashmir’s economy, including horticulture, food processing, cold storage, handicrafts, small industry, tourism and emerging green industries.
Cheap electricity should not encourage waste. It should encourage production.
Third, part of the resource dividend should be reinvested in the electricity system itself.
That means modernising distribution through SCADA, smart meters, feeder and transformer metering, modern conductors, transformers and loss-reduction technologies.
The objective should be to bring Kashmir’s distribution losses towards, and eventually below, the Indian benchmark.
Only then can we say that consumers are receiving the full benefit of the resource.
Ultimate Question
Before asking Kashmir's people to pay more for electricity, we should ask whether they are already entitled to pay less because of the economic value of the natural resource from which that electricity is produced.
That question changes the debate.
Kashmir’s people should not be forced to choose between two unsatisfactory alternatives: an inefficient electricity system or an expensive electricity system.
They deserve a third alternative.
An efficient electricity system built around the principle that Kashmir’s natural resources should create value for Kashmir.
This does not mean pretending electricity has no cost.
It means recognising that Kashmir’s rivers have economic value too. It does not mean abandoning financial discipline.
It means applying financial discipline first to the utility and distribution system. It does not mean providing unlimited free electricity.
It means establishing a defined resource dividend that returns a portion of Kashmir’s hydropower wealth directly to its people.
And it certainly makes little sense to ask Kashmiri industry to become more competitive while simultaneously making one of its most fundamental inputs more expensive.
Kashmir should turn its power advantage into an economic advantage.
For decades, we have looked at Kashmir’s rivers primarily as sources of electricity.
We should now view them as sources of economic sovereignty, industrialisation and public wealth.
The objective should be simple: Less electricity lost. Less electricity wasted. Less burden on the consumer. More value retained in Kashmir. Electricity should not merely light Kashmir’s homes. It should power Kashmir’s economic future.
That is the power policy Kashmir needs, rather than another cycle of tariff hikes followed by public protest.
Nearly 20 years ago, business leaders such as Shakeel Qalander and I were arguing that before making consumers pay for the deficit, policymakers should find the deficit within the system itself.
Two decades of experience now require us to ask an even bigger question:
Why should the people whose rivers produce the power have to pay more for it?
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