The central government has allowed additional borrowing for the states, entailing an investment of over INR 1.4 lakh crore. The states could borrow additional funds of 0.5 percent of their GSDP to implement power-sector reforms already announced but failing completion due to financial barriers.

Jun 28, 2023

The Union Government of India is set to invest over INR 1.4 lakh crore to expedite and speed up the power sector reforms relevant to the current FY. The GoI has allowed an additional borrowing of INR 66,413 crore as a means to incentivize reforms undertaken by 12 states from FY21-22 to FY22-23. The incentives will allow the states to tackle financial barriers and improve operational and economic efficiency in the power sector and boost the consumption of paid electricity.

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Originally, the initiative was announced in the 2021 Budget, allowing an additional borrowing space of up to 0.5 percent of Gross State Domestic Product (GSDP) to states annually between FY21-22 and FY24-25. The initiative was taken to incentivize sectoral reforms.

The union government will also adjust the provisions barring the state governments to benefit from the reforms that have already been announced but have failed to meet the criterion for central support. The additional borrowings will support the state of West Bengal with INR 15,263 crore, followed by Rajasthan with INR 11,308 crore, Andhra Pradesh with INR 9,574 crore, Kerala with INR 8,323 crore, and Tamil Nadu with INR 7,054 crore.

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The incentives are linked to states meeting reform milestones and stipulated performance benchmarks. These include a progressive assumption of responsibility for losses of public sector power distribution companies and transparency in financial reporting of the sector.