A large chunk of off-Budget borrowing by states, which own distribution companies, or discoms, are used to foot electricity subsidies, according to a study by the New Delhi-based think tank Centre for Social and Economic Progress (CSEP).
The report, titled “The Nature and Implications of Off-Budget Borrowings in India: Centre and States”, says in 2021, the five southern states -- Telangana, Andhra Pradesh, Karnataka, Kerala, and Tamil Nadu -- together accounted for debt worth Rs 2.34 trillion, approximately 93 per cent of the combined off-Budget borrowing by the states.
“State governments, who are the primary owners of the bulk of distribution companies or discoms, spend heavily to pay for electricity subsidies, which has considerably strained the state’s finances. Funds are used to cover subsidy costs, infuse capital, cover losses and service debt obligations,” the report said.
According to the report, the aggregate losses of 68 discoms increased 66 per cent to Rs 50,281 crore in 2020-21, rendering them incapable of running everyday operations without a capital dump by the states.
Servicing their debt has become a “far-fetched idea”.
The report says Andhra Pradesh Power Finance Corporation (PFC) borrowed Rs 15,161 crore in FY21. It is followed by Tangedco, which is a subsidiary of the Tamil Nadu Electricity Board and is responsible for installing thermal/gas/hydro power plants, along with generating renewable energy. It raised Rs 14,700 crore of the state’s off-Budget borrowing of Rs 15,396 crore.
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Punjab State Power Corporation got Rs 8,238 crore of the Rs 15,550 crore extra-budgetary funds. Telangana spent Rs 2,922 crore on its power companies.
Besides, the report says states drew flak from the Comptroller and Auditor General for not being able to reap the benefits of the Ujwal DISCOM Assurance Yojana, launched in 2015 for reviving power distribution companies, as only 16 states took over the debt obligations of power corporations, while 11 joined to improve their operational efficiencies.
“The financial distress caused by discoms is consistent across states. Guarantees, too, if and when materialised, will add to the debt burden. The power sector accounts for more than 60 per cent of the total outstanding guarantees by the state governments. The 15th Finance Commission was concerned about the financial sustainability of the power sector on account of highly subsidised prices to several consumer groups, including agriculture, as well as the sector’s inefficient regulations, and its unattractiveness to the private sector,” the report says.