Madhya Pradesh Takes The Lead In Undertaking Power Sector Reforms, Gets Additional Borrowing Permission

Madhya Pradesh has taken the lead in undertaking power sector reforms stipulated by the Ministry of Finance.

As part of the reforms, the MP government has started Direct Benefit Transfer (DBT) of electricity subsisdy to farmers in one district of the state with effect from December 2020. With this, 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 Rs. 1,423 crore through Open Market Borrowings, the Ministry of Finance said in a statement on Tuesday (19 January).

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, the statement said.

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:

1. 0.05 per cent of GSDP for reduction in Aggregate Technical & Commercial losses in the state as per prescribed targets.

2. Another, 0.05 per cent 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.

3. Finally, 0.15 per cent 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 December 2020.

Madhya Pradesh has framed a DBT Scheme for agricultural consumers in the state. The scheme has been implemented in MP's Vidisha district, with effect from December 2020.

Under the scheme, an amount of Rs 32.07 crore was transferred to the bank accounts of 60,081 beneficiaries in the December 2020.

Simultaneously, the MP govt 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 three districts in Phase-I, the scheme will be rolled out in the entire state in the financial year 2021-22.

Earlier on 17 May 2020, in view of the resource requirement to meet the challenges posed by the COVID-19 pandemic, the Centre had enhanced the borrowing limit of the states by 2 per cent 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 per cent 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.