Soaring power subsidies reflect discom weakness

NEW DELHI:  The precarious state of India’s power distribution companies can be seen in the sharp rise in state government subsidies to such companies over the past few years, even as sales and profitability have dipped. According to a study by the Council on Energy, Environment and Water (CEEW) and the International Institute for Sustainable Development (IISD), direct power tariff subsidies from state governments increased 32 per cent between FY2015-2016 and FY2018-19—reaching a massive Rs 1.104 lakh crore.

“This is 4.52 per cent of the total budget outlay for FY 2019; and 37.36 per cent of the budget allocated for defence expenditure in FY 2019,” the study noted. It also pointed out that “24 out of 31 Indian states showed a revenue gap in FY 2019, while none that provide subsidies have adhered to the rules on subsidized tariff limits set under the Centre’s National Tariff Policy”. 

In tandem, sales revenue as a share of total expenditure has fallen 3 per cent during the same period. In such a situation, as discoms’ dependence on subsidies rise, delays in subsidy payments have hit discom debt levels hard. “Annually since FY 2016, at least seven Indian state governments have delayed subsidy disbursements to electricity distribution companies, adding to the financial predicament of these companies,” the report noted. 

While the study makes recommendations, it notes that such measures to improve policy-making on subsidy allocation and targeting “can be implemented only if transparency and data reporting are considerably improved”. “Only 13 states and UTs with subsidies clearly report subsidy data, with only seven reporting on subsidies by category. Further, data on 15 states and UTs show significant variation depending on the source of reporting,” the study said.