Finance Ministry Permits AP to Borrow Additional Rs 1515 Cr for Power Sector Reforms

The Finance Ministry has allowed Andhra Pradesh to borrow an additional Rs 1515 crore for undertaking power sector reforms.

The Finance Ministry has allowed Andhra Pradesh to borrow an additional Rs 1515 crore for undertaking power sector reforms. As part of the reforms, the state has started the Direct Benefit Transfer (DBT) scheme of electricity subsidy to farmers with effect from September 2020. Thus, it has successfully implemented one of the three stipulated reforms in the power sector.

In September, the state government had decided to go ahead with the Direct Benefit Transfer (DBT) of Dr. YSRC free power scheme to farmers, despite heavy criticism from the opposition parties. As part of the scheme, electric meters will be installed to all agriculture connections and the money will be transferred to the bank accounts of the farmers based on their consumption. Unlike in the present system, the farmers had to pay the bill for the power they consumed on agriculture and later the government will reimburse the same.

“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 granted permission to the State to raise additional borrowing of Rs 1,515 crore. This has provided the much needed additional financial resources to the state to fight COVID-19 pandemic,” it said.

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

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

In view of the resource required to meet the challenges posed by the COVID-19 pandemic, the central government had in May last year 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 implementation of One Nation One Ration Card System, Ease of doing business reform, Urban Local body/ utility reforms and power sector reforms.

Also in September, we had reported that the Central Government had ordered the release of Rs 3300 crore loan to the Andhra Pradesh power sector. The loan will fall under the second tranche of the Atmanirbhar Loan.