There’s nothing called free power

Like lunch, there is nothing called free electric power. Or there shouldn’t be. Narendra Modi has rightly urged states to pay the money they owe to power distribution and generating companies, amounting to a staggering ₹2.5 lakh crore. The politics of populism and patronage has undermined the viability of India‘s power sector. This can gravely hamper the growth of a vital infrastructure sector. States must muster the political will to end these giveaways and stop giving short shrift to reasonable user charges. Turning state utilities viable, creating an efficient market for power, making budgeted subventions transparent and allocating more resources to upgrade infrastructure in distribution is the way forward. Discoms must also regularly disclose their financial results for lenders to assess their financial viability.

The revamped power distribution scheme to provide financial assistance to discoms should improve their viability. The finances of discoms deteriorated due to the delay and non-payment of subsidies by states. These subsidies are to compensate for free/cheap power, particularly to the farm sector. Free power artificially depresses electricity cost. Periodic bailouts – where states take over the losses or debt burden of discoms – dent state finances. State debt has been going up, the Ujwal Discom Assurance Yojana (UDAY) proving to be a particular burden. UDAY has failed, and the overdues of discoms to power generators are steadily mounting.

The losses of discoms surpassed the pre-UDAY level of 0.4% of GDP in 2018-19. Their long-term debt began rising in 2017-18, surpassed the pre-UDAY level by 2018-19, and rose further in 2019-20. The combined losses of discoms in the five most indebted states – Bihar, Kerala, Punjab, Rajasthan and West Bengal – constituted 24.7% of the total losses in 2019-20. The technical and commercial losses in distribution, around 22%, are way too high. Reforms, over the last three decades, have followed the letter of the law while haphazardly ignoring its spirit. That must change.