Madhya Pradesh takes the lead in undertaking Power Sector reforms

Starts Direct Benefit Transfer (DBT) of electricity subsidy to farmers

Gets permission to mobilise additional financial resources of ₹ 1,423 crore

Madhya Pradesh has taken the lead in undertaking power sector reforms stipulated by the Department of Expenditure, Ministry of Finance. As part of the reforms, the State has started Direct Benefit Transfer (DBT) of electricity subsisdy to farmers in one district of the state with effect from December, 2020. Thus, the State has successfully implemented one out of the three stipulated reforms in the power sector.

Successful implementation of the reform has made the State eligible to mobilise additional financial resources equivalent to 0.15 percent of its Gross State Domestic Product (GSDP). Accordingly, the Department of Expenditure has grandted permission to the State to mobilise additional financial resources of ₹ 1,423 crore through Open Market Borrowings. This has provided the much needed additional financial resources to the State to fight COVID-19 pandemic.

Power Sector reforms sitpulated by the Ministry of Finance aim at creating a transparent and hassle free provision of power subsidy to farmers and prevent leakages. They also aim at improving the health of power distribution companies by alleviating their liquidity stress in a sustainable manner.

As per the guidelines issued by the Department of Expenditure, the States undertaking reforms in power sector are granted permission to raise additional financial resources of up to 0.25 percent of the GSDP. This is linked to a set of 3 reforms in the sector:

(i)  0.05 % of GSDP for reduction in Aggregate Technical & Commercial losses in the State as per prescribed targets.

(ii) Another, 0.05 % of GSDP is allowed for reduction in the gap between Average Cost of Supply and Average Revenue Realisation (ACS-ARR gap) in the State as per prescribed targets.

(iii) Finally, 0.15 % of GSDP of the State on introduction of Direct Benefit Transfer (DBT) to all farmers in the State in lieu of free/ subsidised electricity. For this, the State government has to frame a Scheme for transfer of cash and implement the Scheme in at least one district by 31^st December, 2020.

Madhya Pradesh has framed a DBT Scheme for agricultural consumers in the State. The Scheme has been implemented in Vidisha District of the State, where electricity is suppplied through the M.P. Madhya Kshetra Vidyut Vitaran Co. Limited with effect from December, 2020. Under the Scheme an amount of ₹ 32.07 crore was transferred to the bank accounts of 60,081 beneficiaries in the month of December, 2020. Parallely, the State has also initiated a process to implement the DBT scheme in Jhabua and Seoni districts as well. Based on the learnings from implementation of the Scheme in 3 districts in Phase-I, the Scheme will be rolled out in the entire State in the financial year 2021-22.

In view of the resource requirement to meet the challenges posed by the COVID-19 pandemic, the Government of India had on 17^th May, 2020 enhanced the borrowing limit of the States by 2 percent of their GSDP. Half of this special dispensation was linked to undertaking citizen centric reforms by the States.

The States get permission to raise additional funds equivalent to 0.25 percent of GSDP on completion of reforms in each sector. The four citizen centric areas identified for reforms were (a) Implementation of One Nation One Ration Card System, (b) Ease of doing business reform, (c) Urban Local body/ utility reforms and (d) Power Sector reforms.

Till now, 14 States have carried out at least one of the four stipulated reforms and have been granted reform linked borrowing permissions. Out of these, 11 States have implemented the One Nation One Ration Card System, 8 States have done ease of doing business reforms, 4 States have done local body reforms and Madhya Pradesh has implemented power sector reforms. Total reform linked additional borrowing permission issued so far to the States stands at Rs.­­­ 62,762 crore.

Direct Benefit Transfer for electricity subsidies enables reform-linked additional state borrowing after district-level implementation. Introduction of Direct Benefit Transfer (DBT) for agricultural electricity subsidies in one district qualified the State for reform-linked additional borrowing. The DBT scheme was implemented in Vidisha district with beneficiary transfers and will expand to other districts before statewide rollout. The Department of Expenditure's framework links additional resource mobilisation to three power-sector reforms-reduction of AT&C losses, narrowing the ACS-ARR gap, and DBT introduction-permitting States to raise extra funds through open market borrowings upon meeting the prescribed conditions.