The problem with household electricity consumption

Exorbitant electricity bills have long been a source of concern for households in Pakistan, often draining over half of a monthly salary. However, the real issue extends beyond the high costs; it lies in the skewed distribution of electricity consumption. For decades, households have been the primary consumers of electricity, while productive sectors like industry have lagged behind.

To put this into perspective, consider India, where residential energy consumption stands at 24%, while the industrial sector consumes 42%, and agriculture accounts for 17%, according to the India Energy Portal. This pattern reflects a healthy level of industrialization in the country.

In contrast, Pakistan's economic trajectory has been lopsided. Conventional economic theory dictates a progression where agriculture plays a substantial role in the early stages of development, followed by industrialization, ultimately leading to the service sector becoming the primary contributor to the GDP.

However, Pakistan has experienced premature de-industrialization. In the fiscal year 2023, while agriculture contributed approximately 25% to the GDP, the services sector dominated with a staggering 54.3%, leaving industries trailing at just 22%. Even more concerning, large-scale manufacturing, which should be a major electricity consumer and a source of economic growth, employment, and exports, only accounted for a mere 11% of the GDP in the same fiscal year.

A significant portion of Pakistan's electricity generation, approximately 46%, relies on thermal sources such as oil, gas, and coal. As local resources are depleted, the government increasingly depends on costly imports. This overreliance on imports puts pressure on the country's exchange rate, leading to a depreciation of the Pakistani rupee, which in turn makes electricity more expensive and fuels inflation.

Inflation, as a result, negatively impacts economic growth by eroding people's purchasing power and increasing production costs for industries. Exports decline, further straining the exchange rate, and the vicious cycle continues.

Moreover, since household consumption dominates electricity usage, this strain on imports doesn't translate into value-added outputs that could offset the increased costs through exports and domestic manufacturing.

Compounding these issues are line losses and theft, which add additional pressure on already inflated tariffs due to subsidies for certain sectors, surcharges, and taxes.

The call to strengthen local industries and boost domestic consumption and exports has been an oft-repeated refrain. However, as the current state of electricity consumption demonstrates, little progress has been made in the past 25 years. The need for a more balanced distribution of electricity consumption and a concerted effort to promote industrial growth remains a pressing challenge for Pakistan's economic development. Addressing this issue is essential to ensure sustainable and equitable growth in the nation's economy.

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