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Reports suggest that a debt restructuring plan is being prepared for power distribution companies (discoms) in seven states - Uttar Pradesh, Punjab, Rajasthan, Haryana, Andhra Pradesh, Tamil Nadu and Madhya Pradesh. According to some estimates, the combined outstanding debt for discoms is Rs 2 lakh crore. Discoms have been facing heavy losses. According to a Planning Commission Report, the cost of supplying electricity increased at a rate of 7.4 per cent annually between 1998-99 and 2009-10. The average tariff has also increased at an annual rate of 7.1 per cent over the same period. However, the report shows that the average tariff per unit of electricity has consistently been much lower than average cost of supply per unit. Between 2007-08 and 2011-12, the gap between average cost and average tariff per unit of electricity was between 20 and 30 per cent of costs.
Average cost and average tariff per unit of electricity (Rs per kWh)
Year |
Unit cost |
Average tariff per unit |
Gap between cost and tariff |
Gap as percentage of unit cost |
2007-08 |
4.04 |
3.06 |
0.98 |
24% |
2008-09 |
4.6 |
3.26 |
1.34 |
29% |
2009-10 |
4.76 |
3.33 |
1.43 |
30% |
2010-11 |
4.84 |
3.57 |
1.27 |
26% |
2011-12 |
4.87 |
3.8 |
1.07 |
22% |
Source: “Annual Report 2011-12 on the Working of State Power Utilities and Electricity Departments”, Planning Commission State discoms have been losing money due to higher costs than revenues, as well as high transmission and distribution (T&D) losses. The commercial losses for discoms in India (after including subsidies) increased from Rs 16,666 crore in 2007-08 to Rs 37,836 crore in 2011-12. Reports suggest that the restructuring plan being prepared will be worth Rs 1.2 lakh crore in short-term liabilities. Half of the proposed amount would be issued as bonds by the discoms, backed by a state government guarantee. Banks and financial institutions would reschedule the remaining Rs 60,000 crore of debt, with a moratorium of three years on payment of the principal amount. State governments that adopt the financial restructuring plan would not recover any loans given to discoms before they start showing profits. Under a proposed transition finance mechanism, the central government would reimburse 25 per cent of the principal amount of bonds to states that fully implement the plan. Also, states that achieve a reduction in T&D losses above a targeted level in three years may be given grants. Newspaper reports also suggest that states will have to prepare plans for eliminating the gap between the average cost and average tariff per unit of electricity.
A few weeks ago, in response to the initial protests by farmers against the new central farm laws, three state assemblies – Chhattisgarh, Punjab, and Rajasthan – passed Bills to address farmers’ concerns. While these Bills await the respective Governors’ assent, protests against the central farm laws have gained momentum. In this blog, we discuss the key amendments proposed by these states in response to the central farm laws.
What are the central farm laws and what do they seek to do?
In September 2020, Parliament enacted three laws: (i) the Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Act, 2020, (ii) the Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Act, 2020, and (iii) the Essential Commodities (Amendment) Act, 2020. The laws collectively seek to: (i) facilitate barrier-free trade of farmers’ produce outside the markets notified under the various state Agriculture Produce Marketing Committee (APMC) laws, (ii) define a framework for contract farming, and (iii) regulate the supply of certain food items, including cereals, pulses, potatoes, and onions, only under extraordinary circumstances such as war, famine, and extraordinary price rise.
How do the central farm laws change the agricultural regulatory framework?
Agricultural marketing in most states is regulated by the Agricultural Produce Marketing Committees (APMCs), set up under the state APMC Act. The central farm laws seek to facilitate multiple channels of marketing outside the existing APMC markets. Many of these existing markets face issues such as limited number of buyers restricting the entry of new players and undue deductions in the form of commission charges and market fees. The central laws introduced a liberalised agricultural marketing system with the aim of increasing the availability of buyers for farmers’ produce. More buyers would lead to competition in the agriculture market resulting in better prices for farmers.
Why have states proposed amendments to the central farm laws?
The central farm laws allow anyone with a PAN card to buy farmers’ produce in the ‘trade area’ outside the markets notified or run by the APMCs. Buyers do not need to get a license from the state government or APMC, or pay any tax to them for such purchase in the ‘trade area’. These changes in regulations raised concerns regarding the kind of protections available to farmers in the ‘trade area’ outside APMC markets, particularly in terms of the price discovery and payment. To address such concerns, the states of Chhattisgarh, Punjab, and Rajasthan, in varying forms, proposed amendments to the existing agricultural marketing laws.
The Punjab and Rajasthan assemblies passed Bills to amend the central Acts, in their application to these states. The Chhattisgarh Assembly passed a Bill to amend its APMC Act in response to the central Acts. These state Bills aim to prevent exploitation of farmers and ensure an optimum guarantee of fair market price for the agriculture produce. Among other things, these state Bills enable state governments to levy market fee outside the physical premises of the state APMC markets, mandate MSP for certain types of agricultural trade, and enable state governments to regulate the production, supply, and distribution of essential commodities and impose stock limits under extraordinary circumstances.
Chhattisgarh
The Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Act, 2020 allows anyone with a PAN card to buy farmers’ produce in the trade area outside the markets notified or run by the APMCs. Buyers do not need to get a license from the state government or APMC, or pay any tax to them for such purchase in the trade area. The Chhattisgarh Assembly passed a Bill to amend its APMC Act to allow the state government to notify structures outside APMC markets, such as godowns, cold storages, and e-trading platforms, as deemed markets. This implies that such deemed markets will be under the jurisdiction of the APMCs as per the central Act. Thus, APMCs in Chhattisgarh can levy market fee on sale of farmers’ produce in such deemed markets (outside the APMC markets) and require the buyer to have a license.
Punjab and Rajasthan
The Punjab and Rajasthan Bills empower the respective state governments to levy a market fee (on private traders, and electronic trading platforms) for trade outside the state APMC markets. Further, they mandate that in certain cases, agricultural produce should not be sold or purchased at a price below the Minimum Support Price (MSP). For instance, in Punjab sale and purchase of wheat and paddy should not be below MSP. The Bills also provide that they will override any other law currently in force. Table 1 gives a comparison of the amendments proposed by states with the related provisions of the central farm laws.
Table 1: Comparison of the central farm laws with amendments proposed by Punjab and Rajasthan
Provision |
Central laws |
State amendments |
Market fee |
|
|
Minimum Support Price (MSP) - fixed by the central government, based on the recommendations of the Commission for Agricultural Costs and Prices |
|
|
Penalties for compeling farmers to sell below MSP |
|
|
Delivery under farming agreements |
|
|
Regulation of essential commodities |
|
|
Imposition of stock limit |
|
|
Dispute Resolution Mechanism for Farmers |
|
|
Power of civil courts |
|
|
Special provisions |
|
|
Note: A market committee provides facilities for and regulates the marketing of agricultural produce in a designated market area.
Have the state amendments come into force?
The amendments proposed by states aim to address the concerns of farmers, but to a varying extent. The Bills have not come into force yet as they await the Governors’ assent. In addition, the Punjab and Rajasthan Bills also need the assent of the President, as they are inconsistent with the central Acts and seek to amend them. Meanwhile, amidst the ongoing protests, many farmers’ organisations are in talks with the central government to seek redressal of their grievances and appropriate changes in the central farm laws. It remains to be seen to what extent will such changes address the concerns of farmers.
A version of this article first appeared on Firstpost on December 5, 2020.