Union Budget 2022: Power Sector Needs More Reforms

The Union Budget has put a lot of emphasis on Capital expenditure, which is a very welcome step for the growth of the infrastructure sector. However, as in the past, if one goes by the thumb rule, the power sector growth contributes all most same as that of GDP. To attain a GDP of 10 per cent, the Power sector must grow by just about less than 10 per cent. However, in all Union Budgets, there is a lot of emphasis on infrastructure sans Power Sector, and the same is turned out in Union Budget 2022. It can be seen from all previous Budgets that there is a lack of concrete vision with continuity and certainty. 

The gross example is the inability of the Government to push the Electricity Amendment Bill since 2014. The reason is that electricity is a concurrent business between Central and States. We all know that electricity is a big issue in all state elections and all state governments offer free electricity with reform going for a toss. There is little chance of the Union Government moving ahead with the Electricity Amendment Bill after revoking the Agriculture Reform Bill.

The power sector is very capital intensive, and its reform (which has to start from distribution by curbing the theft and rationalising the tariffs) needs a lot of money. Central Government has been trying to help state government with various schemes. Still, these turn out to be transactional or short-term measures without any long-term Vision or sustainable solution. The Covid-19 pandemic has also put extra financial stress on States and Union Government.

Budget 2022 Provisions

In the existing Budget, too, the Government has attempted to make States more disciplined in reducing losses in the power sector. It says, “In 2022-23, as per the recommendations of the 15th Finance Commission, the states will be allowed a fiscal deficit of 4 per cent of GSDP of which 0.5 per cent will be tied to Power Sector Reforms.” There is a scheme (Revamped Distribution Sector Scheme) already being laid out by Central Government to provide grants to States based on reforms.

The Union Government has been very aggressive in pushing renewable Energy, Smart Metering and other future energy transition technologies. While these are welcome measures, without long term sustainable reforms by States, these measures would be like painting or decorating the old and worn structure. There are plenty of issues that would come up after a few years with such aggressive RE. Personally, I am not sure that India would be ready to deal with the practical aspects of integrating RE with grid and Demand.

One major contentious issue pending is GST. GST is exempted on electrical energy, whether it's thermal energy, solar energy, hydropower, or any other form of electrical energy. GST is also exempted on electricity transmission or distribution utility. This is an undue burden on electricity consumers as discoms pay GST on all their goods and services.