FE Editorial : UP economics

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SummaryYou have to hand it to the Samajwadi Party.

Dole from Centre, freebies for voters

You have to hand it to the Samajwadi Party. It wants a R90,000 crore financial package from the Centre, arguing that these are not grants but dues owed by the Centre as its share for various central schemes in the past, and yet continues to flirt with the Opposition and plans to vote against the Centre’s FDI-in-retail policy. Though its debt is over R2,45,000 crore and its fiscal deficit a high 3.8% of GDP, the state had no compunction in waiving a R1,650 crore of loans taken by 7.2 lakh farmers or in offering a R300 crore free irrigation scheme. And now, the chief minister announced in the assembly, the state plans to provide free electricity for 2 crore small and marginal farmers in the state. This, estimates suggest, should cost the public sector utility in the state around R500-700 crore. Under normal circumstances, doles given out by a state is the state’s problem, but in this case the attempt is to get the Centre to partially fund the deficit through its R90,000 crore package.

While the Centre will obviously look long and hard at Uttar Pradesh’s demands before sanctioning any financial package, it’s a good idea to also examine this from the point of view of the power sector financial restructuring package that has just been announced. Though the exact details of the package have not yet been worked out, the basic premise is that states are willing to be disciplined. There is little in the case of Uttar Pradesh that suggests this to be the case. When the electricity grid collapsed in August due to rampant overdrawing of electricity supplies from the grid, it was found Uttar Pradesh was one of the worst offenders. Between June 1 and July 16, a total of 402 warnings were issued to the state by the Northern Regional Load Dispatch Centre, but the state chose to ignore them. The story of what happened to the Unscheduled Interchange (UI) charges levied by the regulator is equally shocking. In order to maintain grid discipline, states are asked to pay a penalty in the form of UI charges to ensure there is no underdrawal or overdrawal of electricity—either is fatal for the grid. But while Uttar Pradesh’s penalties rose to R722 crore between April 1 and July 3, the state paid just R47 crore of this, leaving a total UI arrears

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