States undertaking power reforms can borrow Rs 1.4 lakh crore extra in FY24

This is in accordance with a FY24 budget announcement in this regard and the 15th Finance Commission recommendations, which included extra annual borrowing worth 0.5 per cent of gross state domestic product (GSDP) for states during 2021-25 period, subject to them undertaking specified reforms in the power sector, which has long caused fiscal drain.

For 2023-24, the borrowing limit for the states have been pegged at 3.5 per cent of the respective GSDP, including 0.5 per cent tied to power-sector reforms.

In 2021-22 and 2022-23, 12 state governments were given permission to raise Rs 66,413 crore extra debt, using the facility linked to the power sector.

While some states had demanded a higher ceiling for the current year, the Centre chose to keep the additional borrowing room linked to power sector at 0.5 per cent as in last two years.

Higher borrowings in FY21 and FY22 to meet the extra expenses caused by Covid had raised the states’ debt levels. Of course, all states did not exhaust the additional borrowing space even during the Covid period.

“States that were unable to complete the reform process in 2021-22 and 2022-23 may also benefit from the additional borrowing earmarked for 2023-24 if they carry out reforms in the current financial year,” the statement added. The power-sector reforms that states have been nudged to undertake by the scheme are aimed at making consumers pay for electricity and improving operational and economic efficiency in the sector.   The performance parameters include reductions in operational losses, revenue gap,  payment of cash subsidy by adopting direct benefit transfer and reduction in tariff subsidy as a percentage of revenue.

For achieving wider goals, state governments will have to assume the losses of public sector distribution companies and correctly report the payment of subsidies in the sector, liabilities of the government to distribution companies and companies to others.

Upon the completion of these reforms, a state’s performance is evaluated based on criteria to determine its eligibility for extra borrowing, which the statement termed as incentive, ranging from 0.25 per cent to 0.5 per cent of GDP based on performance. FE