The government has allowed 10 States including Uttar Pradesh, Tamil Nadu and Rajasthan additional borrowing permission to raise ₹28,204 crore for undertaking the power sector reforms including assuming the responsibility of losses of state Discoms.

The Finance Ministry, based on the recommendations of the 15th Finance Commission, had decided to grant the additional borrowing space of up to 0.5 per cent of the Gross State Domestic Product (GSDP) to the States every year for four years from FY22 to FY25 based on reforms undertaken by them in the power sector.

This was announced by the Finance Minister in the Budget speech for FY22. The Power Ministry is the nodal agency for assessment of the performance of States and determining their eligibility for granting additional borrowing permission.

States and objectives

Tamil Nadu has been allowed to raise ₹7,054 crore followed by Uttar Pradesh (₹6,823 crore), Rajasthan (₹5,186 crore), Andhra Pradesh (₹3,716 crore), Odisha (₹2,725 crore) and Assam (₹1,886 crore). The other four States are Himachal Pradesh, Manipur, Meghalaya and Sikkim.

The objective of this move are to improve the operational and economic efficiency of the sector, and promote a sustained increase in paid electricity consumption. Detailed guidelines and marking criteria in this regard were issued by the Department of Expenditure on June 9, 2021.

Benchmarks set

To avail of the additional borrowing, the States have to undertake a set of mandatory reforms and also meet stipulated performance benchmarks. The reforms include assuming responsibility for losses of Discoms, transparent reporting of power sector finances, including payment of subsidies as well as the recording of liabilities of governments to Discoms. It also includes timely rendition of the financial and energy accounts, and its timely audit. 

In FY23 as well, the States can avail of the facility of additional borrowing. An amount of ₹1,22,551 crore will be available as an incentive to States for undertaking these reforms. States who could not complete the reform process in FY22 may also avail of the benefit for FY23 if they carry out the reforms in the current financial year.