Power, a reality check

Source: The post is based on an article “Power, a reality check” published in the Indian Express on 17^th August 2022.

Syllabus: GS 3 Infrastructure; Energy

Relevance: Power Distribution Sector Reforms

News: Recently, the Central government has come up with a Revamped Distribution Sector Scheme (RDSS) in a series of attempts to tackle the challenges of the power sector.

The Central government and state governments have made impressive strides in increasing access to the quantity and quality of electricity, as well as expansion of renewable capacity in India.

What are the major issues in the Power Sector?

The financial health of the power sector is rapidly deteriorating. At present, the state-owned DISCOMs are debt-ridden. In fact, the problem has also worsened the fiscal situation of the state governments.

As per the RBI and PRS Legislative Research, the “true” deficit of the state governments significantly increases in FY21, if DISCOM’s losses are incorporated. For example, state government deficits increased as a whole from 4.7% to 5.5% of state GSDP, putting state governments above fiscal responsibility limits. Further, the “true” aggregate debt increases from 31.0% to 34.5%. This has happened in the case of Punjab and Rajasthan, whose deficits and debt have exceeded the indicative targets set by the Fifteenth Finance Commission (FFC) due to the non-inclusion of the DISCOM losses.

The discoms are incurring huge losses, in increasing order, from “Headline losses”, “losses without subsidies and grants”, and “losses without subsidies and grants and including the arrears of the discoms”. For example, For the fiscal year 2020-21, the combined losses of the discoms are Rs 2.1 lakh crore without subsidies and grants, Rs 3.0 lakh crore when arrears to power generating companies (GENCOs) are included, and much more when the headline loss of 78,000 crores is included.

What are the causes of poor affairs of state-owned discoms?

The discoms have not been able to achieve full cost recovery through revenues and continue to bear losses.

The financial situations of the state governments have worsened because the state governments have failed to fully integrate DISCOM operations in the analysis of state government finances.

Thus, the DISCOM losses must be added to state government deficits, and the DISCOM’s debt must be included in state government debt. It will show a clear picture of the fiscals of state governments.