The actual impact of the Government’s debt restructuring plan for State power distribution companies (Discoms) will be felt from fiscal 2014, says India Ratings.
In a statement, the agency, while maintaining it will have a minimal impact initially, said that the actual impact of financial restructuring will vary depending upon States’ deficit, debt and economic profile.
“The major impact of debt restructuring on deficit would be felt only from fiscal 2014 when States would start making interest payment on the bonds issued by them in fiscal 2013,” it added.
In its special report on Financial Restructuring of State distribution companies (Discoms), India Ratings said that it was of the view that the financial restructuring plan is well thought out and takes into account the fiscal consolidation path suggested by the Thirteenth Finance Commission (TFC).
The impact of financial restructuring on State finances in Financial Year 2013 would be in the form of an increase in debt once they start taking over Discoms’ 50 per cent short-term liabilities (STLs), it said.
The Central Government would provide capital reimbursement support of 25 per cent of principal repayment by State Governments on STLs.
Fiscal impact of restructuring of Discoms’ debt on the Central Government’s finances will be Rs 14,953 crore, the timing of impact would depend on the terms of bonds issued by the State Governments, the agency said.
“States are in a position to absorb the shocks of Discoms debt restructuring, however, the growth cycle can derail the process. Discoms’ debt restructuring would have some adverse impact on two States — Haryana and Rajasthan,” said Devendra Kumar Pant, Director and Head Public Finance, India Ratings and Research.
“A prolonged economic slowdown would make it difficult for States to absorb the impact of Discoms debt restructuring,” he said adding that India Ratings expects States to continue their fiscal consolidation process by rationalising their current expenditure rather than cutting capital expenditure.
Under the financial restructuring, seven States would issue special securities amounting to Rs 59,813 crore. These are – Andhra Pradesh, Haryana, Madhya Pradesh, Punjab, Rajasthan, Tamil Nadu and Uttar Pradesh