FinMin allows 12 States to borrow Rs 66,413 cr extra for power reforms

New Delhi The Finance Ministry on Wednesday said it has permitted additional borrowing of Rs 66,413 crore by 12 States in the last two financial years as part of financial incentives for undertaking power sector reforms.

Based on the recommendations of the Ministry of Power, the Ministry of Finance has granted permission for reforms undertaken in 2021-22 and 2022-23 to 12 state governments. Over the last two financial years, they have been allowed to raise financial resources of Rs 66,413 crore through additional borrowing permissions, the ministry said in a statement. As per the data released by the finance ministry, West Bengal has received borrowing permission worth Rs 15,263 crore, followed by Rajasthan (Rs 11,308 crore), Andhra Pradesh (Rs 9,574 crore), Kerala (Rs 8,323 crore) and Tamil Nadu (Rs 7,054 crore) in the two fiscals.

"The Department of Expenditure has given a boost to reforms by the states in power sector by providing financial incentives in the form of additional borrowing permissions," the finance ministry said, adding over Rs 1.43 lakh crore incentive would be available for the states in 2023-24 for reforms in the power sector.

The initiative of linking reforms with permission for additional borrowing by states was announced by the Union Finance Minister in Union Budget 2021-22. Under this initiative, an additional borrowing space of up to 0.5 per cent of the Gross State Domestic Product (GSDP) is available to the states annually for a four-year period from 2021-22 to 2024-25. This additional financial window is dependent on implementation of specific reforms in the power sector by the states.

"The initiative has spurred State Governments to initiate the reform process, and several States have come forward and submitted details of the reforms undertaken and achievements of various parameters to the Ministry of Power," the Ministry added.

The primary objectives of granting financial incentives for undertaking power sector reforms are to improve operational and economic efficiency within the sector and promote a sustained increase in paid electricity consumption. To be eligible for the incentives, states must undertake a set of mandatory reforms and meet stipulated performance benchmarks. The required reforms include 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. Upon completion of these reforms, a state's performance is evaluated based on specific criteria to determine its eligibility for the incentive amount which may range from 0.25 to 0.5 per cent of GDP based on performance.