Andhra Pradesh becomes the 2nd State to undertake Power Sector reforms

Gets permission to mobilise additional financial resources of ₹ 1,515 crore

The State has been granted permission to mobilize ₹ 9,190 crore for undertaking reforms in four citizen centric areas

Andhra Pradesh has become the second State to undertake the 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 with effect from September, 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 raise additional borrowing of ₹ 1,515 crore. This has provided the much needed additional financial resources to the State to fight COVID-19 pandemic.

Besides Andhra Pradesh, Madhya Pradesh has also undertaken reforms in the power sector. Accordingly, the State was given additional borrowing permission of ₹ 1,423 crore, equivalent to 0.15 percent of its GSDP on 18^th January, 2020-21.

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.

Andhra Pradesh has framed a DBT scheme for agricultural consumers in the State. The scheme has been implemented in Srikakulam District of the State with effect from September, 2020. The State has informed that the DBT scheme will be rolled out in the entire State from April, 2021 onwards.           

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.

Besides Power Sector Reforms, Andhra Pradesh has also completed One Nation One Ration Card reform, Urban Local Bodies Reforms and Ease of Doing Business Reforms. Therefore, the State has been granted permission to raise a total additional amount of ₹ 9,190 crore as incentive to carry out reforms in these citizen centric areas.  

Till now, 16 States have carried out at least one of the four stipulated reforms and have been granted reform linked borrowing permissions. Out of these, 12 States have implemented the one nation one ration card system, 11 States have done ease of doing business reforms, 5 States have done local body reforms and 2 States have undertaken power sector reforms. Total reform linked additional borrowing permission issued so far to the States stands at Rs. ­­­73,257 crore.

Direct Benefit Transfer of electricity subsidy enables additional borrowing permission for state under reform-linked GSDP incentive. Andhra Pradesh implemented Direct Benefit Transfer (DBT) of electricity subsidy to farmers in Srikakulam District from September 2020 and framed a statewide DBT to commence April 2021; this DBT implementation entitles the State to additional borrowing equal to 0.15% of GSDP, and the Department of Expenditure has permitted mobilisation of corresponding additional resources under the reform-linked borrowing framework.