This will help resolve the problem in Bihar, says the study released on Tuesday.
According to the study, less than 50 per cent consumers of all income levels paid their electricity bills. It shows bigger consumers are as likely to fail to pay bills as smaller ones and it's not an issue of an expensive redistribution programme, but of the entire electricity market.
Also, the power authority in Bihar collects just 30 per cent of the cost of supplying power and less than 20 per cent of the official rate.
Thus, the distribution firms lose Rs 70 for every Rs 100 of power supplied. They, therefore, limit their losses by limiting the supply no consumer gets 24 hours of electricity, the average consumer gets about 12 hours a day, and some areas only 6 hours a day.
As a result, some consumers value electricity at more than its costs but are unable to purchase it.
"Surprisingly, we find no relationship between payment rates and the amount of electricity supplied to a given area," said Burgess, IGC Director and LSE Professor. "It's a serious indication that the power market is not functioning effectively," Burgess said.
"It's critical to provide lifeline style electricity to the poorest. But doing that in a way that causes power markets to fail harms everyone. No solution will work in the end, unless the social norm that electricity is a right is replaced with the norm that it's like any regular product, like food and cell phones," said Michael Greenstone, the Milton Friedman Distinguished Service Professor in Economics and director of the Energy Policy Institute at the University of Chicago (EPIC) and the Tata Centre for Development at Chicago (TCD).
The paper recommends potential policy solutions for the social norm change and that include tariff reform, social incentives, better bill collection, social trust, technology and privatisation.
It's a widespread belief in developing countries that electricity is a right to be enjoyed by all. In practice, this social norm results in customers not paying their bills, stealing electricity and bribing bill collectors behaviours the government often tolerates.
Thus, power utilities lose money on every unit of electricity sold, causing large financial losses that limit their desire and ability to maintain infrastructure, provide reliable power and invest in expanding access to electricity. And as customers then receive poor energy supply, they are even less likely to pay their bills.
The study, conducted by the International Growth Centre (IGC) of the London School of Economics & Political Science (LSE), the University of Chicago and Yale with support from the Bihar government. The research was led by Robin Burgess (LSE), Michael Greenstone (Chicago), Nicholas Ryan (Yale) and Anant Sudarshan (Chicago).
( With inputs from IANS )