Power, a reality check

The Indian Express | 1 month ago | 17-08-2022 | 05:50 am

Power, a reality check

The Revamped Distribution Sector Scheme (RDSS), along with planned changes to the law, are the latest in a series of attempts by the central government to tackle the challenges of the power sector. Power sector reforms are overdue not just for their own sake but also because they are critical to rescuing state government finances.Excellent recent reports by the RBI and PRS Legislative Research provide lucid analyses of the fiscal situation of the states. Intended probably as a wake-up call, the RBI’s report reassured more than it alarmed. To be sure, a few states such as Punjab and Rajasthan had deficits and debt that exceeded the indicative targets set by the Fifteenth Finance Commission (FFC). But overall most states either met both or one of these targets.These reports highlight the challenges faced by states, owing to the dysfunctionality of the power sector discoms. But failing to fully integrate discom operations in the analysis of state government finances obscures the true picture. When this is done — as we do below — the reality is alarming.India has made impressive strides in increasing access to the quantity and quality of electricity and in expanding renewable capacity, for which the government deserves credit. But the financial health of the power sector is rapidly deteriorating and flirting with catastrophe.Figure 1 plots three measures of the estimated losses of the discoms in increasing order of “truth”: Headline losses, losses without subsidies and grants, and losses without subsidies and grants and including the arrears of the discoms.Our estimates suggest that for the fiscal year 2020-21, combined losses of the discoms are Rs 2.1 lakh crore without subsidies and grants which mount to Rs 3.0 lakh crore when arrears are included. These exceed by a factor of 2.7-3.8, respectively, the headline loss of 78,000 crore.But even these numbers might underestimate the problem. The loss numbers only exclude grants under the UDAY scheme even though there are several other grants. And the numbers only include discom arrears to the power generating companies (GENCOs) but not to others, resulting in overall payables of about Rs 2.4 lakh crore. The true arrears situation will therefore depend on the magnitude, certainty and timing of the discoms getting paid for their receivables, much of which is owed by government actors. The true loss estimate could therefore be greater.State governments could be staring at losses of 1.5 per cent of GDP just from this one sector. Moreover, as Figure 1 shows, apart from a brief period when headline losses were stabilised in the mid-2010s, true losses have been steadily increasing for over a decade.The truth is that the whole discom operation — with very few exceptions, notably in Gujarat and in a few urban metropolises — is a giant Ponzi scheme, both perpetrated and back-stopped by state governments.For over 50 years, costs have never really been covered by revenues, and losses in perpetuity have become a feature, not a bug. Few state government leaders, if any, have even pretended to achieve full cost recovery. The imitative populism that has gripped the states recently makes chronic under-recovery a reality going forward too.But this Ponzi scheme never sees — is never allowed to see — its disastrous denouement. Some government actor — typically state governments but also public sector banks or the central government — has always come to the rescue, averting a full-blown crisis. De facto, some public sector balance sheet back-stops the discoms and ultimately prevents the Ponzi fallout. Accepting this reality has one implication for accounting transparency. Public sector discom operations are traditionally thought to create contingent liabilities. Contingency seems a euphemism because with unfailing regularity they become actual liabilities. Put starkly, discom operations are state government operations.If that is true, and in the spirit of what the UDAY scheme attempted, discom losses (including arrears) operations must be included in state government finances both on the flow and stock side. Discom losses must be added to state government deficits, with logic and arithmetic consistency demanding that discom debt be included in state government debt (of course, this principle should apply to other “contingent” liabilities of state governments).For fiscal 2020-21, Figure 2 depicts state government finances to exclude (Panel A) and include (Panel B) discom losses (and arrears) for both flows and stocks. The contrast between the two is striking. Ignoring discom losses suggests that six states ran afoul of both fiscal targets set by the FFC and another six were consistent with both.When the accounting is done properly, 11 states run afoul of the fiscal targets set by the FFC. There is a general shift to the right (higher deficits) and upwards (higher debt). In FY21, “true” deficits, incorporating discom losses, increase state government deficits as a whole from 4.7 per cent to 5.5 per cent of state GSDP, putting state governments above fiscal responsibility limits. And their “true” aggregate debt increases from 31.0 per cent to 34.5 per cent. And there are some truly alarming cases: Not just Punjab and Rajasthan but also Himachal Pradesh, Uttar Pradesh, Bihar, and to a lesser extent Tamil Nadu and Kerala. It is almost certainly the case that with true deficits and debts being greater, state governments’ fiscal sustainability will look much more precarious.Who then is financing or enabling this Ponzi scheme? Figure 3 provides the surprising answer. Increasingly, the power sector is being financed not by the PSBs but by the two non-bank financial companies, Power Finance Corporation (PFC) and Rural Electrification Corporation (REC), which have recently been merged. From 2014 onwards, PFC/REC have lent more to the power sector than PSBs. As of 2021-22, the latter have lent about Rs 6 lakh crore (stagnant since 2014), whereas PFC/REC have lent Rs 7.6 lakh crore, more than doubling within four years from 2017. Moreover, more than one-third of PFC/REC lending is to the discoms. In other words, the next vulnerability in the financial system related to the power sector is PFC/REC.In sum, the facts presented above illustrate three new realities: The financial problem of discoms is considerably worse than headline numbers indicate; consequently, state government finances are considerably more precarious than even the recent RBI analysis suggests; and the vulnerabilities stemming from the financing of unsustainable discom operations have extended to a new institution, namely PFC/REC.What are the consequences and possible solutions? We take these up in our next article.Anand and Sharma are consultants in the private sector. Subramanian is with Brown University and the Center for Global Development

Google Follow Image


Similar News

Muslim leaders split over RSS chief meetings, from persons he met, to issues they chose
The Indian Express | 2 hours ago | 27-09-2022 | 02:50 pm
The Indian Express
2 hours ago | 27-09-2022 | 02:50 pm

Muslim organisations are split over the recent meeting between RSS chief Mohan Bhagwat and representatives of the community. While some have welcomed the chance at increased dialogue, calling it the need of the hour, others feel the meeting was no more than “optics”.Last month, five eminent members of the Muslim community — former chief election commissioner S Y Quraishi, former Lt Governor of Delhi Najeeb Jung, RLD vice-president Shaheed Siddiqui, former AMU Vice Chancellor and Lt General (retd) Zameer Uddin Shah, and businessman Saeed Shervani – had met Bhagwat, where the two sides took up each other’s concerns and resolved to have periodic such meetings.Last week, Bhagwat followed this up with a meeting with the Chief Imam of the All India Imam Organisation(AIIO), Umer Ilyasi, at a mosque. Ilyasi, who referred to Bhagwat as “rashtra pita” after the meeting, told The Indian Express that the talks hoped to create “communal harmony”.Questioning these gestures, the executive member of the All India Muslim Personal Law Board (AIMPLB), Qasim Rasool Ilyas, told The Indian Express that if Bhagwat and the RSS really wanted to reach out to the Muslim community, they would get in touch with organisations that actually have influence and following — such as the AIMPLB or the Jamiat Ulema-e-Hind or the Jamaat-e-Islami.“Bhagwat has never got in touch with us or any of these organisations in the past 20 years,” Ilyas said.He also questioned the issues raised at the meetings with the RSS. “All those who have met Bhagwat from the Muslim community have said that these meetings have been convivial. But the fact is that in the past eight years (of the Modi government), there have been hate speeches against Muslims in India, open calls for Muslim genocide, threats of rape against Mulsim women, as well as a controversy surrounding the hijab and issues around mosques like Gyanvapi. Bhagwat has never issued statements around these issues. Nor has the BJP-led government, to which the RSS is a mentor. The RSS has not instructed that these activities against the Muslim community stop, nor has it instructed the government to take any action. In that case, these goodwill meetings are just hollow gestures,” Ilyas said, adding: “Its (the RSS’s) silence is louder than its so-called outreach.”Members across organisations also point out that Chief Imam Umer Ilyas, with whom Bhagwat met, has little standing within the Muslim community. One member said Ilyas was not even a recognised Islamic scholar. Another said he has always been “pro-government” so as to ensure perks and benefits for imams.The AIIO claims to be “the largest Muslim organisation in India”, representing half-a-million imams across three lakh mosques in India.A Muslim leader who did not want to be identified said: “When the Babri Masjid was demolished in 1992, the Muslim community across India that had always supported the Congress, boycotted the party. In order to bring the community back within its fold, then Prime Minister P V Narasimha Rao approached Ilyasi’s father Jamil Ahmed Ilyasi, who formed the AIIO. It was Jamil Ahmed who got the government to give salaries to imams. Otherwise these salaries were given by foundations and through donations. Ever since, the AIIO has always been close to the ruling party. They don’t hold a standing in the community.”Umer Ilyas, in fact, has met Prime Minister Narendra Modi too on several occasions, after their first meeting in 2018, as well as Home Minister Amit Shah. He has shared the platform with movie star Amitabh Bachhan and met prominent Hindu spiritual leaders including Jagadish Vasudev (Sadhguru) and Sri Sri Ravi Shankar.Other leaders, however, feel that raising doubts about Ilyas’s credentials is missing the point, and that building bridges with the RSS is much-needed for a community that now feels constantly under attack.Jamiat Ulema-e-Hind secretary Niaz Ahmed Farooqui said they “welcome Bhagwat’s initiative”. “The RSS should have reached out earlier. The RSS has a strong influence in the country; whether this influence is right or wrong is another matter. But we don’t believe that even the RSS wants the country to be divided, disunited.’’Farooqui added that the Muslim community needs to focus on “real” issues. “One of our main concerns in recent times has been the backwardness of Muslims, and the lack of opportunities for the community, especially in terms of education and employment. The community is so distracted and occupied with other issues that it is not concentrating on what is important. Even if the meeting was simply symbolic, it was still a step forward,” he said.Darul Uloom Deoband’s Arshad Madani, who is also the president of one of the two factions of the Jamiat Ulema-e-Hind, himself met Bhagwat three years ago. “These meetings have always taken place, there is nothing new,’’ he said, adding that his meeting with the RSS chief was also held in a “good atmosphere’’. Bhagwat has “nothing against Muslims”.However, Madani refused to disclose the specifics of his meeting with Bhagwat.Among the Muslim leaders who has been the most vocal against the recent RSS meeting is AIMIM chief Asaduddin Owaisi. He called the five who met Bhagwat “Muslim elites’’ out of touch with reality.Addressing some of the accusations against the five of them in an opinion piece in The Indian Express, Quraishi wrote: “Do we represent the community? Maybe not. Nobody has elected or selected us. But we are also the community. We have our perceptions and observations. It was our individual initiative. Are we elitist? Possibly… We are not illiterate. We are equally aware of the ground realities: Incidents of lynching; calls for genocide; rapes; economic boycott; questioning of voting rights, and discrimination in getting houses or jobs.”Sources in the RSS say similar meetings are planned in the coming days. A source said: “The RSS has been reaching out to the Muslim community since 2002, so there is nothing new in that (that was the year, post the Gujarat riots, that the Muslim Rashtriya Manch was started by the RSS). What you are seeing now is the impact of 20 years of work. Of course, both the RSS and Muslim organisations feel the need for dialogue more now, which is why we are seeing increased meetings by the RSS chief. When problems arise, then dialogue is the only way to resolve them. Unless you meet, how can you resolve issues?”About what had changed, the RSS source said: “The RSS now represents a large section of the Hindu society. Earlier, the Hindus were disorganised and disunited, unlike the Muslim community which was very organised. The priority for the RSS then was to organise the Hindus. Only after that could we hold meetings and conduct dialogues with other communities – only once we had sufficient strength.”

Muslim leaders split over RSS chief meetings, from persons he met, to issues they chose
Punjab Assembly Session Today: House set for stormy affair as AAP govt silent on SYL, sacrilege; trust motion still on radar
The Indian Express | 5 hours ago | 27-09-2022 | 11:50 am
The Indian Express
5 hours ago | 27-09-2022 | 11:50 am

The Punjab Cabinet Monday discussed issues, including stubble burning, industry and bills related to GST and excise, which will be taken up during the assembly session beginning Tuesday, The Cabinet, however, did not discuss the issue of tabling a confidence motion in the House even as the AAP called a meeting of all its MLAs before the House assembles for the day’s proceedings.The meeting would be chaired by Chief minister Bhagwant Mann in Vidhan Sabha at 9:30 am. The session starts at 11 am.While a few MLAs told The Indian Express that they have been asked to ensure their presence in the meeting, AAP’s chief whip Baljinder Kaur said that no whip has been issued to the legislators. “They will make sure that they are present in the session. They are all responsible. They know we all have to take up people’s issues,” she said.Interestingly, last week, when the government had called a special session to table a confidence motion, the AAP had nominated Baljinder Kaur as chief whip. She had issued a three-line whip to the legislators to ensure their presence in the session and vote for the party. Governor Banwarilal Purohit, however, had withdrew his permission for convening the special sitting citing rules.The government has now called the session on “issues like GST, power and stubble burning.” The schedule issued by Vidhan Sabha mentioned obituary references, legislative business and motion under Rule 16 regarding adjournment of the House sine-die.The meeting of business advisory committee would take place after the obituary references and before the House gathers again to take up the legislative business. While the Cabinet meeting Monday gave its nod to amendment in state GST Act, it was silent on power and stubble burning issues.Sources said there were deliberations on whether the session can be extended. The government and AAP is also maintaining silence on tabling the confidence motion. A party MLA said, “They (government) may want to bring it at any cost to criticise the BJP’s Operation Lotus. We have heard that the CM may table the motion”.Cabinet minister Aman Arora, while briefing the media after the Cabinet feigned ignorance on confidence motion, said, “I do not know anything. The business advisory committee will decide tomorrow.”Interestingly, the BJP has not been invited in the BAC, the invite for which has been sent to member representatives of every political party. The BJP has already stated that it would be holding a parallel mock session at their office.Leader of Opposition, Partap Singh Bajwa said, “The session is going to be a total fraud with the people of Punjab. There is not going to be any discussion on people’s issues. Basically, the session is being organised in Punjab but it would be to address the voters in Himachal Pradesh and Gujarat.”He targeted the AAP government, saying no Question Hour or Zero Hour will be allowed during the session for raising public issues.To a question on Bajwa seeking discussion on various issues, including Sutlej Yamuna Link canal and sacrilege, Arora replied that Congress leader could raise these matters in the BAC.To a question about BJP deciding to hold a “mock” session on Tuesday, Arora took a swipe at the saffron party, saying they should have at least three members for such session. “For running a mock session, there is a need for Speaker, treasury and opposition and they (BJP) just have two members,” said Arora.The session is likely to be a stormy affair with the opposition parties set to corner the government on various issues, including alleged illegal sand mining, the Sutlej-Yamuna Link (SYL) canal and law and order.Congress leader Sukhpal Singh Khaira called the session a “joke” and said it should have been summoned to discuss burning issues such as the SYL canal, sacrilege and crop damage due to untimely rains.“Tomorrow’s session of Vidhan Sabha is a joke as after spending 1 Cr of people’s money, there’s no question-hour as govt needs 15 days notice to answer them! It should have been summoned appropriately to discuss burning issues like Syl, Beadbi, Crop damage etc instead of merely 2 issues,” the Bholath MLA said in a tweet.Shiromani Akali Dal (SAD) leader Daljit Singh Cheema said the session should be held for a longer duration to discuss important issues, including “corruption, illegal sand mining, deteriorating law and order and the excise policy”.There is no point in holding the session if the AAP wants to enact a “drama” by bringing a confidence motion, Cheema said.

Punjab Assembly Session Today: House set for stormy affair as AAP govt silent on SYL, sacrilege; trust motion still on radar
Protest over quota for non-Gujarat students
Times of India | 6 hours ago | 27-09-2022 | 11:07 am
Times of India
6 hours ago | 27-09-2022 | 11:07 am

VADODARA: Upset with the decision of opening up the state quota of postgraduate (PG) medical seats for MBBS graduates from other states, students in Vadodara staged a protest at the GMERS Medical College, Gotri on Monday. Addressing their concerns, the Gujarat Intern Doctors’ Association and the Gujarat MBBS Students’ Association have chalked out a plan of action which includes filing a writ petition in the Gujarat high court, making representation to the state government, and creating awareness among the masses. The NEET-PG aspirants said that students who completed MBBS in Gujarat and had domicile were eligible for the state quota PG counselling. But from this year the state has opened the doors for the state quota PG medical seats (both government and private) for MBBS graduates from outside Gujarat as well. After registration for NEET PG 2022 started on September 15, the guidelines put on the admission committee’s website mentions that – “Anyone who completed MBBS outside Gujarat (either FMGs or candidates completed MBBS outside Gujarat but in India) who completed 12th in Gujarat and have domicile of Gujarat are now eligible for government and private PG seats of Gujarat state.” The students said that changing the rules all of sudden will be an injustice for MBBS students of the state. The students have demanded that if the government wants to implement such a rule, it should be implemented from the MBBS admission batch 2022-23, who will eventually take admission in PG seats in 2028-29. The PG aspirants argued that even meritorious students who had received good ranks in AIPMT/ NEET did not take admission to premier institutions outside Gujarat because of the state quota.

Protest over quota for non-Gujarat students
Gujarat: Cos struggle to pitch for Ayush exports HQ
Times of India | 6 hours ago | 27-09-2022 | 10:42 am
Times of India
6 hours ago | 27-09-2022 | 10:42 am

AHMEDABAD: Gujarat-based Ayush (Ayurveda, Yoga, and Naturopathy, Unani, Siddha and Homoeopathy) companies are finding it difficult to press for the establishment of the proposed Ayush Export Promotion Council (AEPC) headquarters in the state. Fifteen directors willing to give Rs 5 lakh each to set up the council are needed. Only five are ready so far. The central government has decided to create AEPC to ensure that ayurvedic medicines get access to global markets. Jaman Malviya, the president of Gujarat Ayurvedic Aushadh Manufacturers Association (GAAMA), said: “Gujarat is a leading manufacturer of ayurvedic medicines but we are not getting the confirmation from 10 entrepreneurs for Rs 5 lakh each to set up AEPC headquarters in Gujarat.” Malviya added: “Till now, we have received the confirmation from only five entrepreneurs. We will hold a meeting of the association to ensure that AEPC headquarters comes up in Gujarat.” He said five government-appointed directors will be part of the council. Malviya said that the central government wants the headquarters of the council in a state which has a strong Ayush presence. It is believed that the government has plans to take a decision about setting up of the headquarters by December this year. Telangana is also in the race to get the AEPC headquarters, Malviya said. Gujarat is recording rapid growth in investments in ayurvedic medicines and in the pandemic years of 2020 and 2021, the state saw 126 companies getting licences to manufacture ayurvedic formulations, according to the data of Gujarat Food & Drugs Control Administration (FDCA). Gujarat has currently more than 820 functional ayurvedic manufacturing units.

Gujarat: Cos struggle to pitch for Ayush exports HQ
After losing Foxconn unit, Maharashtra sends mantris to study Gujarat model
Times of India | 9 hours ago | 27-09-2022 | 08:13 am
Times of India
9 hours ago | 27-09-2022 | 08:13 am

MUMBAI: As part of a new team set up by Maharashtra chief minister Eknath Shinde and based on the concept mooted by PM Narendra Modi to study 'best practices' in various states, Maharashtra industries minister Uday Samant and forest minister Sudhir Mungantiwar visited Gujarat on Monday. The two ministers met Gujarat chief minister Bhupendra Patel and studied the Gujarat government's 'CM Dashboard' for tracking activities of government departments at the click of a button. "The Gujarat CM's dashboard model is good for the public and the bureaucracy and for development, so we studied how it works and how it was made. We did a detailed examination about manpower and technology. This dashboard model should not be limited to Gujarat, it should also be implemented in Maharashtra and other states as it helps solve people's problems. People get a call from the CMO (chief minister's office). If we can replicate this in Maharashtra and other states, we can try for an upgraded version. We have finalised that this model should be implemented in Maharashtra," Samant said. Samant and Mungantiwar's visit comes weeks after the Vedanta-Foxconn chip manufacturing project shifted to Gujarat. An official said after PM Modi mooted the idea of studying best practices, Shinde set up a four-member team led by Mungantiwar, Samant and bureaucrats Jayashree Bhoj and Vikas Kharge. The team, which began its study tour with the first stop in Gujarat, will soon visit MP, among other states. On the Vedanta-Foxconn project, Samant said, "I spoke to the Gujarat industries minister, who said their deal was already on for a while. They had rolled out an incentive package. (Vedanta chairman) Anil Agarwal wanted a meeting of the high-powered committee, which did not happen in Maharashtra for a long time, so he decided to move to Gujarat."

After losing Foxconn unit, Maharashtra sends mantris to study Gujarat model