Madhya Pradesh has become the first State to give electricity subsidy through Direct Benefit Transfer. With this, it has fulfilled a power reform condition as proposed by the Centre and thus eligible for additional borrowing.

“The State has started Direct Benefit Transfer (DBT) of electricity subsidy to farmers in one district with effect from December 2020. Thus, the State has successfully implemented one out of the three stipulated reforms in the power sector,” said a statement issued by the Finance Ministry on Tuesday.

The scheme has been implemented in Vidisha district of the State, where electricity is bring supplied through the MP Madhya Kshetra Vidyut Vitaran Co Ltd with effect from December 2020. Under the scheme, an amount of ₹32.07 crore was transferred to the bank accounts of 60,081 beneficiaries in December.

At the same time, the State has also initiated a process to implement the DBT scheme in Jhabua and Seoni districts as well. Based on the learnings from the implementation of the scheme in the three districts in Phase I, the scheme will be rolled out in the entire State in FY2021-22.

More funds

This made the State eligible to mobilise additional financial resources equivalent to 0.15 per cent of its Gross State Domestic Product (GSDP). Accordingly, the Expenditure Department under the Finance Ministry gave a go-ahead to borrow additional ₹1,423 crore through Open Market Borrowings.

Further, the statement said that reforms in the power sector 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.

As per the guidelines, the States undertaking reforms in power sector are granted permission to raise additional financial resources of up to 0.25 per cent of the GSDP. This is linked to a set of three reforms in the sector. First, 0.05 per cent of GSDP will be permitted for reduction in Aggregate Technical and Commercial losses in the State as per prescribed targets. Second, 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.

Finally, 0.15 per cent of GSDP is permitted on introduction of 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 December 31, 2020.

In view of the resource requirement to meet the challenges posed by the Covid-19 pandemic, the Centre had on May 17 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, and power reform is one of them.