New Delhi: The Supreme Court on Thursday launched a scathing critique of the growing culture of “freebies” across states, warning that indiscriminate distribution of largesse is hampering nation building, as it pulled up the Tamil Nadu government over its policy of distributing free electricity.
Hearing a challenge by the Tamil Nadu Power Distribution Corporation Ltd (TNPDCL) to a 2024 amendment in the electricity law, the bench led by Chief Justice of India Surya Kant questioned whether states were prioritising short-term political appeasement over long-term infrastructure development, and warned that indiscriminate largesse funded by taxpayers could undermine fiscal discipline and economic stability. The comments come just weeks before elections are scheduled in the south Indian state.
During the proceedings, the bench, also comprising justices Joymalya Bagchi and Vipul M Pancholi, repeatedly expressed concern over what it described as a “pan-India” trend of distributing benefits without drawing distinctions between those who genuinely require assistance and those who can afford to pay.
“What kind of culture are we developing pan India?” asked the bench, observing that while welfare measures for those unable to pay electricity charges or for education were understandable, blanket subsidies “without drawing a distinction between those who can afford and those who cannot” amounted to appeasement.
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The remarks came during proceedings on TNPDCL’s petition seeking to quash Rule 23 of the Electricity (Amendment) Rules, as arbitrary, unconstitutional and ultra vires the Electricity Act, 2003. The January 11, 2024 amendment mandates that electricity tariffs be “cost-reflective” and caps the gap between the Annual Revenue Requirement (ARR) and estimated revenue at 3%. It also requires existing revenue gaps, along with carrying cost, to be liquidated in a maximum of seven equal annual instalments.
Tamil Nadu has argued that the rule restricts its ability to provide subsidised electricity to domestic, agricultural and hut consumers, and intrudes into the State’s domain of social welfare policy.
But the bench was unconvinced by the broader defence of such subsidy regimes.
“Is it not your obligation to use the money, whether you are a revenue surplus state or not, for developing infrastructure like schools, roads, hospitals?” the court asked.
“Instead you keep giving scooties, ornaments and other things at the time of elections. What is happening in this country?” the court added.
The bench noted that the issue was not confined to Tamil Nadu. “It could be Tamil Nadu or Punjab or Haryana or any other state,” said the bench, adding that most states were revenue deficit but continued to announce cash transfers and free schemes.
“You keep on generating collective taxes only for two things — paying salaries for your employees and distributing freebies…And now we have reached a stage where we are transferring cash into the account of people directly…Imagine…There is no money for development,” it said.
Senior advocate Gopal Subramanium, appearing for TNPDCL, submitted that allocation of resources was a matter of governance even as he pointed out that the widening gap between revenue and expenditure could also reflect larger issues of equity and social engineering.
The bench, however, stressed that fiscal discipline was fundamental. “The principle has to be that if you want to avail of some facility, pay for it. Is that not something basic?” the court remarked.
While acknowledging that states may not seek profit from essential supplies, it asked: “If you want to supply something for free, you will have to earn money from some other sources… Who will pay for it? This is taxpayers’ money…Are the people not expecting you to construct hospitals, roads etc? You are taking money from XYZ and giving it to ABC. Is this right?”
The court also invoked its 2025 BSES judgment, reiterating that tariff determination must follow cost-effective principles and that subsidies, if granted, must comply with the statutory scheme. Under Section 65 of the Electricity Act, subsidies must be provided in advance and transparently reflected in tariff orders.
The bench took note of the dispute before the Appellate Tribunal for Electricity (APTEL), where the Tamil Nadu Electricity Regulatory Commission (TNERC), represented by senior advocate P Wilson, was pulled up for failing to compute and recover “carrying cost” on unliquidated regulatory assets, as mandated by the Supreme Court’s August 6 and October 28, 2025 orders.
In its December 2 and 9 orders, APTEL criticised TNERC for attempting to shift responsibility onto the state government, holding that an independent regulator cannot evade its statutory duty to compute carrying cost merely because the government has a 100% loss-funding policy.
It directed the commission to file compliance affidavits and warned against evasive conduct.
Taking up the petition by TNERC against the APTEL orders, the bench told Wilson, “Why cannot state governments have statesmanship? It is high time all political stalwarts, sociologists, leaders and parties revisit these issues. It will be hampering the development of the nation if you keep on distributing largesse like this.”
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