Budget Session 2017 commenced with the President, Pranab Mukherjee, addressing a joint sitting of Parliament on January 31, 2017. This address by the President highlights the legislative and policy activities and achievements of the government in the previous year. In addition, it gives a broad indication of the government’s agenda for the year ahead. The address is followed by a motion of thanks that is moved in each House by ruling party MPs. This is followed by a discussion on the address and concludes with the Prime Minister replying to the points raised during the discussion.
In the lower house, the motion of thanks has begun today. It began in the upper house on February 2, 2017. Lok Sabha and Rajya Sabha have allocated two and three days for the discussion, respectively. In this context, we present an analysis of the salient points of the agenda proposed in the President’s address from 2014 to 2017 and the current status of its implementation.
| Policy priority stated in the President’s address (2014 to 2017) | Current Status |
| Macroeconomy | |
|
|
| Poverty eradication and financial inclusion | |
|
|
| Agriculture and water security | |
|
|
| Energy | |
|
|
| Governance and legal reforms | |
|
|
| Defence | |
|
|
| Environment | |
|
|
| Rural and Urban Development | |
|
|
| Health | |
|
|
| Women and child development | |
|
|
[Sources: President’s Address to the Parliament from 2014 to 2017; PRS.]
For important highlights from the President’s address in 2017, please see here. For an analysis of the status of implementation of the announcements made in the 2016 address, please see here.
[i] “Press note on First Revised Estimates of National Income, 2015-16”, Ministry of Statistics and Programme Implementation, January 31, 2017, http://mospi.nic.in/sites/default/files/press_release/nad_PR_31jan17.pdf.
[ii] Economic Survey, 2016-17, http://finmin.nic.in/indiabudget2017-2018/e_survey.asp.
[iii] “Press Release Consumer Price Index Numbers on Base 2012=100 for Rural, Urban and Combined for the Month of December 2016”, Ministry of Statistics and Programme Implementation, January 12, 2017,http://mospi.nic.in/sites/default/files/press_release/CPI_PR12jan17th.pdf
[iv] “Developments in India’s Balance of Payments during the second quarter of 2016-17”, Reserve Bank of India, December 13, 2016, https://www.rbi.org.in/scripts/BS_PressReleaseDisplay.aspx?prid=38884.
[v] “Developments in India’s Balance of Payments during the second quarter of 2016-17”, Reserve Bank of India, December 13, 2016, https://www.rbi.org.in/scripts/BS_PressReleaseDisplay.aspx?prid=38884.
[vi] Progress Report, Pradhan Mantri Jan Dhan Yojana (Last accessed on January 24, 2017),http://www.pmjdy.gov.in/account.
[vii] “Cabinet approves setting up of India Post Payments Bank”, Cabinet, June 1, 2016.
[viii] “Achievements of Ministry of Agriculture and Farmers Welfare”, Ministry of Agriculture, January 2, 2016.
[ix] “Agricultural Statistics at a Glance 2015”, Department of Agriculture, Cooperation and Farmer’s Welfare, Ministry of Agriculture and Farmer’s Welfare, http://eands.dacnet.nic.in/PDF/Agricultural_Statistics_At_Glance-2015.pdf.
[x] “Task Force on Interlinking Rivers Constituted”, Press Information Bureau, Ministry of Water Resources, April 14, 2015.
[xi] Special Committee for Interlinking of Rivers, National Water Development Agency,http://www.nwda.gov.in/writereaddata/ilr/notification.pdf.
[xii] Report No. 4, Standing Committee on Energy, ‘The Electricity (Amendment) Bill, 2014’, Lok Sabha, May 2015, Standing Committee on Energy, http://www.prsindia.org/uploads/media/Electricity/SC%20report-Electricity.pdf.
[xiii] “Physical Progress (Achievements)”, Ministry of New and Renewable Energy, March 30, 2015,http://mnre.gov.in/mission-and-vision-2/achievements/.
[xiv] Appropriation Acts (Repeal) Act, 2016, http://lawmin.nic.in/ld/Act22of2016AppropriationActsrepeal.pdf.
[xv] Repealing and Amending Act, 2016, http://lawmin.nic.in/ld/Act23of2016RepealingandAmending.pdf.
[xvi] 12(1)/2014/D (Pen/PoI)- Part II, Government of India, Ministry of Defence, Department of Ex- Servicemen Welfare, November 7, 2015, http://www.desw.gov.in/sites/upload_files/desw/files/pdf/OR OP-DESW-MOD.pdf.
[xvii] Lok Sabha Unstarred Question 1696, Ministry of Defence, November 25, 2016,http://164.100.47.190/loksabhaquestions/annex/10/AU1696.pdf.
[xviii] “Year End Review 2016”, Ministry of Defence, December 31, 2016,http://pib.nic.in/newsite/PrintRelease.aspx?relid=156049.
[xix] The Compensatory Afforestation Fund Act, 2016,http://www.prsindia.org/uploads/media/Compensatory%20Afforestation/CAMPA%20act,%202016.pdf.
[xx] Rajya Sabha Unstarred Question No 82, Ministry of Road Transport and Highways, April 25, 2016.
[xxi] Rajya Sabha Unstarred Question No 914, Department of Rural Development, May 2, 2016 ,http://164.100.47.234/question/annex/239/Au914.pdf.
[xxii] Lok Sabha Unstarred Question No 4443, Ministry of Housing and Urban Poverty Alleviation, December 14, 2016, http://164.100.47.190/loksabhaquestions/annex/10/AU4443.pdf.
[xxiii] Lok Sabha Unstarred Question No 199, Ministry of Urban Development, November 16, 2016,http://164.100.47.190/loksabhaquestions/annex/10/AU199.pdf.
[xxiv] “Rolling out of National Health Assurance Mission”, Press Information Bureau, Ministry of Health and Family Welfare, July 15, 2014.
[xxv] Draft National Health Policy 2015, December 2014, Ministry of Health and Family Welfare,http://www.mohfw.nic.in/showfile.php?lid=3014.
[xxvi] Pradhan Mantri Bharatiya Jan Aushadi Pariyojana guidelines,http://janaushadhi.gov.in/data/Individuals_December_2016.pdf.
[xxvii] The Juvenile Justice (Care and Protection of Children) Act, 2015,http://www.prsindia.org/uploads/media/Juvenile%20Justice/Juvenile%20Justice%20Act,%202015.pdf.
Last week, the Power Finance Corporation reported that state-owned power distribution companies across the country made financial losses amounting to Rs 68,832 crore in 2022-23. This is four times higher than the losses witnessed in 2021-22, and roughly equivalent to the annual budget of a state like Uttarakhand. This blog examines some of the causes and implications of such losses.
Overview of financial losses
For several years now, electricity distribution companies (discoms), which are mostly state-owned, have witnessed steep financial losses. Between 2017-18 and 2022-23, losses accumulated to over three lakh crore rupees. In 2021-22, discom witnessed substantial reduction in their losses, primarily because states released 1.54 lakh rupees in subsidies to clear pending dues. State governments provide discoms with subsidies, so that domestic and agricultural consumers receive affordable power. These payments are typically delayed which creates cash flow constraints, and leads to an accumulation of debt. In addition, costs incurred by discoms in 2021-22 remained unchanged.
Note: Data from 2020-21 onwards does not include Odisha, and Dadra & Nagar Haveli and Daman and Diu since their distribution function was privatised in 2020-21. Data for Ladakh is available from 2021-22 onwards. Data for Jammu and Kashmir is not available. The Delhi Municipal Council Distribution Utility has been included from 2020-21 onwards.
Sources: Power Finance Corporation reports for various years; PRS.
As of 2022-23, losses have increased again to reach Rs 68,832 crore. This increase has been driven by rising costs. At a per unit level, the cost of supplying one kilowatt of electricity rose from 7.6 rupees in 2021-22, to 8.6 rupees in 2022-23 (See Table 1).
Table 1: Financial details of state-owned power distribution companies
|
Details |
2019-20 |
2020-21 |
2021-22 |
2022-23 |
|
Average cost of supplying power (ACS) |
7.4 |
7.7 |
7.6 |
8.6 |
|
Average revenue realised (ARR) |
6.8 |
7.1 |
7.3 |
7.8 |
|
Per unit loss (ACS-ARR) |
0.6 |
0.6 |
0.3 |
0.7 |
|
Total losses (in Rs crore) |
-60,231 |
-76,899 |
-16,579 |
-68,832 |
Note: Data from 2020-21 onwards does not include Odisha, and Dadra & Nagar Haveli and Daman and Diu since their distribution function was privatised in 2020-21. Data for Ladakh is available from 2021-22 onwards. Data for Jammu and Kashmir is not available. The Delhi Municipal Council Distribution Utility has been included from 2020-21 onwards.
Sources: Power Finance Corporation reports for various years; PRS.
Purchase of electricity from generation companies (gencos) forms about 70% of a discom’s total costs, and coal is the primary source for generating electricity. The following chain of events took place in 2022-23: (i) consumer demand for electricity rose by 10% over the previous year, as compared to a 6% year-on-year increase in the past 10 years, (ii) coal had to be imported to meet the increased demand, and (iii) global coal prices were elevated.
Coal imported at elevated prices to keep up with rising electricity demand
In 2022-23, demand for electricity increased by 10% over 2021-22. Between 2008-09 and 2018-19, demand increased at an annual growth rate (CAGR) of 6%. Electricity demand grew as the economy grew (at 7%), and largely came from domestic and agricultural consumers. These consumer categories account for 54% of the total electricity sales, and their demand rose by 7%.
Sources: Central Electricity Regulatory Commission; PRS.
Electricity cannot be stored at scale, which means that generation must be scheduled depending on anticipated demand. The Central Electricity Authority anticipates annual demand for each year. It estimated that demand in 2022-23 would be at 1,505 billion units. However, the actual demand was higher than anticipated in the first few months of 2022-23 (See Figure 3).
To meet this demand, electricity generation had to be ramped up. Coal stocks had already depleted from 29 million tonnes in June 2021 to eight million tonnes in September 2021, on account of high demand in 2021-22. To ensure uninterrupted supply of power, the Ministry of Power directed gencos to import coal. The Ministry noted that without imports, widespread power cuts and blackouts would have occurred.
Sources: Load Generation Balance Report 2022 and 2023, Central Electricity Authority; PRS.
Coal imports rose by about 27 million tonnes in 2022-23. While this constituted only 5% of the overall coal used in the sector, the price at which it was imported significantly impacted the sector. In 2021-22, India imported coal at an average price of Rs 8,300 per tonne. This rose to Rs 12,500 per tonne in 2022-23, a 51% increase. Coal was primarily imported from Indonesia, and prices shot up due to the Russia-Ukraine war, and demand surge by countries like India and China.
Sources: Ministry of Power; Ministry of Statistics and Programme Implementation; PRS.
Coal import situation going forward
In January 2023, the Ministry of Power advised gencos to import 6% of the required coal, to ensure sufficient stock until September 2023. It noted that due to floods and variable rainfall in various parts of the country, hydro generation capacity reduced by about 14%. This put additional burden on coal based thermal generation in 2023-24. Following this, in October 2023, the Ministry directed all gencos to continue using at least 6% imported coal until March 2024.
Sources: Ministry of Coal; PRS.
Structural issues in the power sector and its impact on state finances
Discoms witness persistent financial losses due to certain structural issues. Their costs are typically high because of old contracts with generation companies (gencos). Power purchase costs in these contracts do not account for production efficiencies over the years, and costs remain unchanged. Tariffs are only revised every few years, to ensure that consumers are protected from supply chain shocks. As a result, costs are carried forward for a few years. In addition, discoms sell electricity to certain consumers such as agricultural and residential consumers, below cost. This is supposed to primarily be recovered through subsidy grants provided by state governments. However, states often delay subsidy payments leading to cash flow issues, and accumulation of debt. In addition, tariff recovery from the power sold is not optimal.
Losses reported in the generation sector have also increased. In 2022-23, state-owned gencos reported losses worth Rs 7,175 crore, as compared to the Rs 4,245 crore in 2021-22. Rajasthan accounted for 87% of these, at Rs 6,278 crore. Note that under the Late Payment Surcharge Rules, 2022, discoms are required to make upfront payments to gencos.
Risk to state finances
Persistent financial losses, high debt and guarantees extended by states continue to pose a risk to state finances. These are contingent liabilities for state governments, i.e., in the event a discom is unable to repay its debt, the state would have to take it over.
Several such schemes have been introduced in the past to bail discoms out (See Table 2). As of 2022-23, discoms have an outstanding debt worth Rs 6.61 lakh crore, 2.4% of the national GDP. Debt is significantly high in states such as Tamil Nadu (6% of GSDP), Rajasthan (6% of GSDP), and Uttar Pradesh (3% of GSDP). Previous Finance Commissions have recognised that strengthening discom finances is key in minimising the risk to state finances.
Table 2: Key government schemes for the turnaround of the distribution sector over the years
|
Year |
Scheme |
Details |
|
2002 |
Bailout Package |
States take over the debt of state electricity boards worth Rs 35,000 crore, 50% waiver of interest payable by state electricity boards to central PSUs |
|
2012 |
Financial Restructuring Package |
States take over 50% of the outstanding short-term liabilities worth Rs 56,908 crore |
|
2015 |
Ujwal Discom Assurance Yojana (UDAY) |
States take over 75% of the debt of discoms worth Rs 2.3 lakh crore and also provide grants for any future losses |
|
2020 |
Liquidity Infusion Scheme |
Discoms get loans worth Rs 1.35 lakh crore from Power Finance Corporation and REC Limited to settle outstanding dues of generators, state governments provide guarantee |
|
2022 |
Revamped Distribution Sector Scheme |
Central government to provide result-linked financial assistance worth Rs 97,631 crore for strengthening of supply infrastructure |
Sources: NITI Aayog, Press Releases of the Ministry of Power; PRS.
For more details on the impact of discom finances on state finances, see here. For more details on structural issues in the power distribution sector, see here.
ANNEXURE
Table 3: Cost and revenue structure of discoms on energy sold basis (in Rs per kw)
|
Details |
2019-20 |
2020-21 |
2021-22 |
2022-23 |
|
Average cost of supplying power (ACS) |
7.4 |
7.7 |
7.6 |
8.6 |
|
of which |
||||
|
Cost of procuring power |
5.8 |
5.9 |
5.8 |
6.6 |
|
Average revenue realised (ARR) |
6.8 |
7.1 |
7.3 |
7.8 |
|
of which |
||||
|
Revenue from sale of power |
5.0 |
4.9 |
5.1 |
5.5 |
|
Tariff subsidy |
1.3 |
1.4 |
1.4 |
1.5 |
|
Regulatory income and revenue grant under UDAY |
0.3 |
0.1 |
0.0 |
0.2 |
|
Per unit loss |
0.6 |
0.6 |
0.3 |
0.7 |
|
Total financial losses |
-60,231 |
-76,899 |
-16,579 |
-68,832 |
Sources: Power Finance Corporation reports for various years; PRS.
Table 4: State-wise profit/loss of power distribution companies (in Rs crore)
|
State/UT |
2017-18 |
2018-19 |
2019-20 |
2020-21 |
2021-22 |
2022-23 |
|
Andaman and Nicobar Islands |
-605 |
-645 |
-678 |
-757 |
-86 |
-76 |
|
Andhra Pradesh |
-546 |
-16,831 |
1,103 |
-6,894 |
-2,595 |
1,211 |
|
Arunachal Pradesh |
-429 |
-420 |
NA |
NA |
NA |
NA |
|
Assam |
-259 |
311 |
1,141 |
-107 |
357 |
-800 |
|
Bihar |
-1,872 |
-1,845 |
-2,913 |
-2,966 |
-2,546 |
-10 |
|
Chandigarh |
321 |
131 |
59 |
79 |
-101 |
NA |
|
Chhattisgarh |
-739 |
-814 |
-571 |
-713 |
-807 |
-1,015 |
|
Dadra & Nagar Haveli and Daman & Diu |
312 |
-149 |
-125 |
NA |
NA |
NA |
|
Delhi |
NA |
NA |
NA |
98 |
57 |
-141 |
|
Goa |
26 |
-121 |
-276 |
78 |
117 |
69 |
|
Gujarat |
426 |
184 |
314 |
429 |
371 |
147 |
|
Haryana |
412 |
281 |
331 |
637 |
849 |
975 |
|
Himachal Pradesh |
-44 |
132 |
43 |
-153 |
-141 |
-1,340 |
|
Jharkhand |
-212 |
-730 |
-1,111 |
-2,556 |
-1,721 |
-3,545 |
|
Karnataka |
-2,439 |
-4,889 |
-2,501 |
-5,382 |
4,719 |
-2,414 |
|
Kerala |
-784 |
-135 |
-270 |
-483 |
98 |
-1,022 |
|
Ladakh |
NA |
NA |
NA |
NA |
-11 |
-57 |
|
Lakshadweep |
-98 |
-120 |
-115 |
-117 |
NA |
NA |
|
Madhya Pradesh |
-5,802 |
-9,713 |
-5,034 |
-9,884 |
-2,354 |
1,842 |
|
Maharashtra |
-3,927 |
2,549 |
-5,011 |
-7,129 |
-1,147 |
-19,846 |
|
Manipur |
-8 |
-42 |
-15 |
-15 |
-22 |
-146 |
|
Meghalaya |
-287 |
-202 |
-443 |
-101 |
-157 |
-193 |
|
Mizoram |
87 |
-260 |
-291 |
-115 |
-59 |
-158 |
|
Nagaland |
-62 |
-94 |
-477 |
-17 |
24 |
33 |
|
Puducherry |
5 |
-39 |
-306 |
-23 |
84 |
-131 |
|
Punjab |
-2,760 |
363 |
-975 |
49 |
1,680 |
-1,375 |
|
Rajasthan |
-11,314 |
-12,524 |
-12,277 |
-5,994 |
2,374 |
-2,024 |
|
Sikkim |
-29 |
-3 |
-179 |
-34 |
NA |
71 |
|
Tamil Nadu |
-12,541 |
-17,186 |
-16,528 |
-13,066 |
-9,130 |
-9,192 |
|
Telangana |
-6,697 |
-9,525 |
-6,966 |
-6,686 |
-831 |
-11,103 |
|
Tripura |
28 |
38 |
-104 |
-4 |
-127 |
-193 |
|
Uttar Pradesh |
-5,269 |
-5,902 |
-3,866 |
-10,660 |
-6,498 |
-15,512 |
|
Uttarakhand |
-229 |
-808 |
-323 |
-152 |
-21 |
-1,224 |
|
West Bengal |
-871 |
-1,171 |
-1,867 |
-4,261 |
1,045 |
-1,663 |
|
State Sector |
-56,206 |
-80,179 |
-60,231 |
-76,899 |
-16,579 |
-68,832 |
|
Dadra & Nagar Haveli and Daman & Diu |
NA |
NA |
NA |
242 |
148 |
104 |
|
Delhi |
109 |
657 |
-975 |
1,876 |
521 |
-76 |
|
Gujarat |
574 |
307 |
612 |
655 |
522 |
627 |
|
Odisha |
NA |
NA |
-842 |
-853 |
940 |
746 |
|
Maharashtra |
NA |
590 |
1,696 |
-375 |
360 |
42 |
|
Uttar Pradesh |
182 |
126 |
172 |
333 |
256 |
212 |
|
West Bengal |
658 |
377 |
379 |
398 |
66 |
-12 |
|
Private Sector |
1,523 |
2,057 |
1,042 |
2,276 |
2,813 |
1,643 |
|
All-India |
-54,683 |
-78,122 |
-59,189 |
-77,896 |
-13,766 |
-67,189 |
Note: Minus sign (-) indicates loss; Dadra & Nagar Haveli and Daman & Diu discom was privatised on April 1, 2022; New Delhi Municipal Council Distribution utility has been added from 2020-21 onwards.
Sources: Power Finance Corporation reports for various years; PRS.
