The central government on Tuesday announced financial incentives to states for power sector reforms in the form of additional borrowing permissions. The move aims to encourage and support the states in undertaking reforms to enhance the efficiency and performance of the power sector,” the finance ministry said in a statement. The government has earmarked Rs 1,43,332 crore as a financial incentive for the fiscal year 2023-24. Earlier, an amount of Rs 66,413 crore was granted for reforms undertaken in 2021-22 and 2022-23.
The initiative was announced by Finance Minister Nirmala Sitharaman in the Union Budget 2021-22. Under this initiative, an additional borrowing space of up to 0.5 percent of the Gross State Domestic Product (GSDP) is available to the states annually for a four-year period from 2021-22 to 2024-25. This additional financial window is dependent on implementation of specific reforms in the power sector by the states.
The initiative has spurred state governments to initiate the reform process and several states have come forward and submitted details of the reforms undertaken and achievements of various parameters of the ministry of power.
According to the release, the breakdown of the amount allowed for each state as an incentive to embark on the reform process is as follows: “In the financial year 2023-24, States can continue to avail themselves of the facility of additional borrowing linked to power sector reforms. An amount of Rs. 1,43,332 crore will be available as an incentive to States for undertaking these reforms in 2023-24. States that were unable to complete the reform process in 2021-22 and 2022-23 may also benefit from the additional borrowing earmarked for 2023-24 if they carry out the reforms in the current financial year,” it said.
The primary objectives of granting financial incentives are to improve operational and economic efficiency within the sector and promote a sustained increase in paid electricity consumption. To be eligible for the incentives, state governments must undertake a set of mandatory reforms and meet stipulated performance benchmarks. Meanwhile, the Ministry of Power serves as the nodal Ministry for assessing the performance of states and determining their eligibility for granting additional borrowing permission.