Maharashtra Cabinet’s decision on Monday to cut power tariffs by up to 20 per cent for domestic consumers, industries and power loom units across the state excepting Mumbai, prompted by Delhi and then Haryana’s move to cut rates through subsidy provisions, could set back the state exchequer by an estimated Rs 7,200 crore a year.
More worryingly, the move could open the floodgates for other states to take the populist route and in the process, junking a rational approach to power pricing that has been broadly visible across the country over the past couple of years and a body blow to the process of restoring the operational viability of the downstream distribution sector.
In this context, Maharashtra’s decision to prune tariffs is more perturbing as compared to Delhi’s move, considering that the former, in the year ended March 2013, has just managed to move out of a revenue deficit position (Rs 2,267 crore in 2011-12) to a wafer-thin revenue surplus of Rs 27 crore. The move to cut tariffs across these three categories could end up, according to reports quoting numbers offered by officials in the state-owned distribution utility, burdening the state’s exchequer to the tune of about Rs 7,200 crore a year. Currently, the state-owned Maharashtra State Electricity Distribution Company’s (MahaVitaran) is estimated to have monthly payments amounting to Rs 3,750 crore — power purchase of Rs 3,000 crore, debt servicing of Rs 250 crore, operation and maintenance costs of Rs 200 crore and employee cost of Rs 300 crore — even as it manages to collect about Rs 3,550 crore a month from its residential, commercial and industrial consumers across the state.
A commensurate subsidy, on the lines of what Delhi and Haryana have resolved to provide their respective distribution utilities, would badly hit the finances of Maharashtra, which has projected an increase in the revenue surplus to Rs 184 crore in its budget for the current fiscal ending March 2014. Unlike Maharashtra, the Arvind Kejriwal-led government in Delhi started its innings with an immediate headroom of Rs 3,050 crore even as the new state government’s decision to offer a 50 per cent subsidy to those consuming less than 400 units is estimated to entail a cash outgo of Rs 61 crore for the state government in the remaining three months of 2013-14.
Haryana has already announced concessions worth an estimated Rs 600 crore through reduction in power tariffs for the 38 lakh domestic and 5.5 lakh agriculture consumers that have come into effect from this month, under which the latest hike in tariffs effected by the state regulator have been rolled back and domestic consumers would be entitled to pay the same tariff as paid by them in April 2013 while agriculture consumers would pay 10 paise per unit, instead of 25 paise per unit.
The move by the three states could negate the broader progressive trend seen in the last 24 months, where almost all the states have hiked their respective power tariff rates for non domestic category ranging from around 1 per cent in Kerala to 35 per cent in Maharashtra, as well as domestic category ranging from around 3 per cent in West Bengal to 42 per cent in Tamil Nadu.
The move by Maharashtra, stoked by demands from the ruling party MPs, is even more worrying in the wake of the fact that the marginal revenue surplus of Rs 27 crore reported by the state at the beginning of this fiscal, should have been, according to the Thirteenth Finance Commission roadmap for fiscal consolidation, achieved in FY12 itself. This also comes at a time when the state has been proactive in curtailing growth in its debt-service obligations and has successfully lowered the growth in interest expenses from 11.9 per cent in FY12 to 10.5 per cent in FY13 (Budget Estimate). Also, the stock of outstanding liabilities of the state is rather high at Rs 2,46,447 crore in FY13, budgeted to further increase to Rs 2,70,551 crore in the current fiscal.
While the move leaves out Mumbai and its suburbs, the government might also consider consumers in the state capital in due course.
BACK TO POPULISM
*The move by Maharashtra, Delhi and Haryana reverses a progressive trend where all states had hiked power tariffs to compensate for higher input costs
*Maharashtra set to erode its wafer-thin revenue surplus
*This move could pave the way for a return to populism, junking the rational approach to tariffs