One lakh crore debt on states due to cheap electricity: Maharashtra owes 19000 crores, MP has to pay 5000 crores; How much is the subsidy on electricity?

Posted on 23rd Aug 2022 by rohit kumar

The issue of freebies is being heard in the Supreme Court. Among these freebies, the most politically sensitive issue in India is electricity subsidy. In Delhi, the Aam Aadmi Party government gives free electricity. In the Punjab elections, the Aam Aadmi Party had promised free electricity. Electricity is also subsidized in many other states. On the other hand, the entire power sector in the country is at a loss and the debts of most of the distribution companies are increasing.

 

In such a situation, the question arises whether the inefficient structure of subsidy is responsible for the deficit in the power sector. Is it right for governments to subsidize electricity or not? What is the government doing to deal with the loss being caused to the power companies? If such power companies continue to suffer, then how will the future infrastructure be strengthened? So let's know the answers to some such questions related to electricity subsidy ...

 

First, understand subsidy?

 

The subsidy given by the government on anything is called a subsidy. It is a part of the non-planned expenditure of the government. Governments around the world subsidize their citizens on different things. Major subsidies in India are found on petroleum, fertilizer, food, and electricity. Many economists say, if subsidies fail to improve the overall economy of a country, then subsidies are a failure.

 

Now about the power subsidy...

 

Electricity subsidy is given to agriculture and domestic consumers as well as to cottage industries like power and handloom and village panchayats. Apart from this, electricity subsidy is also being given to industry and business in many states. Srinivas Krishnaswamy, CEO of Vasudha Foundation, says that as the consumption of electricity increases, the subsidy goes down, and the tariff increases. In such a situation, many consumers with high consumption get electricity at a higher rate.

 

1.32 lakh crore rupees spent in a year

 

Power ministry data shows that 27 out of 36 states and union territories are providing subsidized power to consumers, with at least Rs 1.32 lakh crore spent in the 2020-21 financial year alone across the country. Madhya Pradesh, Rajasthan, and Karnataka provided the highest power subsidy of 36.4% or ₹48,248 crores.

 

Three-year data analysis shows that Delhi saw an 85% increase in its subsidy expenditure between 2018-19 and 2020-21. It was Rs 1,699 crore in 2018-19, which increased to Rs 3,149 crore. This is the second highest among all the states. Manipur saw the biggest jump of 124% in electricity subsidy in these three years. It increased from Rs 120 crore to Rs 269 crore.

 

Different subsidies brackets across states

 

There are different subsidy brackets in different states of the country. In Delhi and Punjab, up to 200 units of electricity are free, while in Haryana 150 units of electricity are given free. In Jharkhand also, electricity is free for up to 200 units and after that, the subsidy slabs have been fixed as the expenditure increases. States owed Rs 1,00,931 crore to power-generating companies in February 2022. It was 67,917 crores in March 2021.

 

60 thousand crore loan on discom

 

According to a report by research firm India Ratings, the poor performance of power distribution companies continued in the last financial year (2021-22) and their losses increased to around Rs 59,000 crore as compared to Rs 34,500 crore in 2019-20.

 

Due to losses, discoms are unable to repay the money of the power generating companies on time. To get them out of the deficit, the government made many schemes but the problem was not solved. Due to increasing dues, the financial management of the power companies gets disturbed.

 

In the past, Prime Minister Modi had said that various states have outstanding dues of more than Rs 1 lakh crore. They have to give this money to the power generation companies. Discoms owe more than Rs 60,000 crore to several government departments and local bodies.

 

These companies are not getting the money given for subsidy on electricity in the states on time and in full. This arrear is also more than Rs 75,000 crore. From power generation to door-to-door delivery of companies responsible for about 2.5 lakh crores stranded.

 

How does electricity reach you?

 

Electricity reaches us through three stages. The first stage is the production, the second is the transmission and the third is the distribution stage. The companies that produce electricity are called GenCos. GenCos sends electricity to the transmission companies i.e. Transco's. Then the transmission companies pass the electricity to the distribution companies (discoms). It is these companies that deliver electricity to your homes.

 

Is subsidy responsible for the deficit?

 

Director of Madras School of Economics, K.R. Political parties can announce freebies/subsidies as election promises, says Shanmugam, but such election promises should be implemented only if there is a revenue surplus in the state budget. However, what is happening at the ground level is that state governments borrow to implement these freebies which in turn increases their debt burden.

 

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