The Ministry of Finance, based on the recommendations of the Fifteenth Finance Commission on Thursday decided to grant additional borrowing space of upto 0.5 percent of the Gross State Domestic Product (GSDP) to the States every year for a four-year period from 2021-22 to 2024-25 based on reforms undertaken by the States in the power sector. This was announced by the finance minister in the Budget speech of 2021-22.

The objectives of granting financial incentives as additional borrowing permissions for taking up reforms in power sector are to improve the operational and economic efficiency of the sector, and promote a sustained increase in paid electricity consumption. Detailed guidelines and marking criteria in this regard were issued by the Department of Expenditure on 09th June 2021.

In order to avail additional borrowing space linked to Power sector reforms, the State governments had to undertake a set of mandatory reforms and also meet stipulated performance benchmarks. The reforms to be carried out by the States were -

Progressive assumption of responsibility for losses of public sector power distribution companies (DISCOMs) by the State Government.
Transparency in the reporting of financial affairs of power sector including payment of subsidies and recording of liabilities of Governments to DISCOMs and of DISCOMs to others.
Timely rendition of financial and energy accounts and timely audit.
Compliance with legal and regulatory requirements.

Once the aforesaid reforms were undertaken by a State, the performance of the State was evaluated on the basis of the following criteria to determine its eligibility for additional borrowing for 2021-22

Percentage of metered electricity consumption against total energy consumption including agricultural connections
Subsidy payment by Direct Benefit Transfer (DBT) to consumers
Payment of Electricity bills by Government Departments and local bodies
Installation of prepaid meters in government office
Use of Innovations and Innovative technologies

In addition, States were also eligible for bonus marks for privatization of power distribution companies.

The Ministry of Power is the nodal Ministry for assessment of performance of States and determining their eligibility for granting additional borrowing permission.

In the financial year 2022-23 too, the States can avail the facility of additional borrowing linked to reforms in power sector. An amount of Rs. 1,22,551 crore will be available as incentive to States for undertaking these reforms in 2022-23. States who could not complete the reform process in 2021-22 may also avail benefit of additional borrowing earmarked for 2022-23, if they carry out the reforms in current financial year.

States To Get Additional Borrowing Space For Power Sector Reforms