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In Budget Session 2018, Rajya Sabha has planned to examine the working of four ministries. The Ministry of Drinking Water and Sanitation is one of the ministries listed for discussion. In this post, we look at the key schemes being implemented by the Ministry and their status.
What are the key functions of the Ministry of Drinking Water and Sanitation?
As per the Constitution, supply of water and sanitation are state subjects which means that states regulate and provide these services. The Ministry of Drinking Water and Sanitation is primarily responsible for policy planning, funding, and coordination of programs for: (i) safe drinking water; and (ii) sanitation, in rural areas. From 1999 till 2011, the Ministry operated as a Department under the Ministry of Rural Development. In 2011, the Department was made an independent Ministry. Presently, the Ministry oversees the implementation of two key schemes of the government: (i) Swachh Bharat Mission-Gramin (SBM-G), and (ii) National Rural Drinking Water Programme (NRDWP).
How have the finances and spending priorities of the Ministry changed over time?
In the Union Budget 2018-19, the Ministry has been allocated Rs 22,357 crore. This is a decrease of Rs 1,654 crore (7%) over the revised expenditure of 2017-18. In 2015-16, the Ministry over-shot its budget by 178%. Consequently, the allocation in 2016-17 was more than doubled (124%) to Rs 14,009 crore.
In recent years, the priorities of the Ministry have seen a shift (see Figure 1). The focus has been on providing sanitation facilities in rural areas, mobilising behavioural change to increase usage of toilets, and consequently eliminating open defecation. However, this has translated into a decrease in the share of allocation towards drinking water (from 87% in 2009-10 to 31% in 2018-19). In the same period, the share of allocation to rural sanitation has increased from 13% to 69%.
What has been the progress under Swacch Bharat Mission- Gramin?
The Swachh Bharat Mission was launched on October 2, 2014 with an aim to achieve universal sanitation coverage, improve cleanliness, and eliminate open defecation in the country by October 2, 2019.
Expenditure on SBM-G: In 2018-19, Rs 15,343 crore has been allocated towards SBM-G. The central government allocation to SBM-G for the five year period from 2014-15 to 2018-19 has been estimated to be Rs 1,00,447 crore. Of this, up to 2018-19, Rs 52,166 crore (52%) has been allocated to the scheme. This implies that 48% of the funds are still left to be released before October 2019.
Construction of Individual Household Latrines (IHHLs): For construction of IHHLs, funds are shared between the centre and states in the 60:40 ratio. Construction of IHHLs account for the largest share of total expenditure under the scheme (97%-98%). Although the number of toilets constructed each year has increased, the pace of annual growth of constructing these toilets has come down. In 2015-16, the number of toilets constructed was 156% higher than the previous year. This could be due to the fact that 2015-16 was the first full year of implementation of the scheme. The growth in construction of new toilets reduced to 74% in 2016-17, and further to 4% in 2017-18.
As of February 2018, 78.8% of households in India had a toilet. This implies that 15 crore toilets have been constructed so far. However, four crore more toilets need to be construced in the next 20 months for the scheme to achieve its target by 2019.
Open Defecation Free (ODF) villages: Under SBM-G, a village is ODF when: (i) there are no visible faeces in the village, and (ii) every household as well as public/community institution uses safe technology options for faecal disposal. After a village declares itself ODF, states are required to carry out verification of the ODF status of such a village. This includes access to a toilet facility and its usage, and safe disposal of faecal matter through septic tanks. So far, out of all villages in the country, 72% have been verified as ODF. This implies that 28% villages are left to be verified as ODF for the scheme to achieve its target by 2019.
Information, Education and Communication (IEC) activities: As per the SBM-G guidelines, 8% of funds earmarked for SBM-G in a year should be utilised for IEC activities. These activities primarily aim to mobilise behavioural change towards the use of toilets among people. However, allocation towards this component has remained in the 1%-4% range. In 2017-18, Rs 229 crore is expected to be spent, amounting to 2% of total expenditure.
What is the implementation status of the National Rural Drinking Water Programme?
The National Rural Drinking Water Programme (NRDWP) aims at assisting states in providing adequate and safe drinking water to the rural population in the country. In 2018-19, the scheme has been allocated Rs 7,000 crore, accounting for 31% of the Ministry’s finances.
Coverage under the scheme: As of August 2017, 96% of rural habitations have access to safe drinking water. In 2011, the Ministry came out with a strategic plan for the period 2011-22. The plan identified certain standards for coverage of habitations with water supply, including targets for per day supply of drinking water. As of February 2018, 74% habitations are fully covered (receiving 55 litres per capita per day), and 22% habitations are partially covered (receiving less than 55 litres per capita per day). The Ministry aims to cover 90% rural households with piped water supply and 80% rural households with tap connections by 2022. The Estimates Committee of Parliament (2015) observed that piped water supply was available to only 47% of rural habitations, out of which only 15% had household tap connections.
Contamination of drinking water: It has been noted that NRDWP is over-dependant on ground water. However, ground water is contaminated in over 20 states. For instance, high arsenic contamination has been found in 68 districts of 10 states. These states are Haryana, Punjab, Uttar Pradesh, Bihar, Jharkhand, Chhattisgarh, West Bengal, Assam, Manipur, and Karnataka.
Chemical contamination of ground water has also been reported due to deeper drilling for drinking water sources. It has been recommended that out of the total funds for NRDWP, allocation for water quality monitoring and surveillance should not be less than 5%. Presently, it is 3% of the total funds. It has also been suggested that water quality laboratories for water testing should be set up throughout the country.
The central government has enforced a nation-wide lockdown between March 25 and May 3 as part of its measures to contain the spread of COVID-19. During the lockdown, several restrictions have been placed on the movement of individuals and economic activities have come to a halt barring the activities related to essential goods and services. The restrictions are being relaxed in less affected areas in a limited manner since April 20. In this blog, we look at how the lockdown has impacted the demand and supply of electricity and what possible repercussions its prolonged effect may have on the power sector.
Power supply saw a decrease of 25% during the lockdown (year-on-year)
As electricity cannot be stored in large amount, the power generation and supply for a given day are planned based on the forecast for demand. The months of January and February in 2020 had seen an increase of 3% and 7% in power supply, respectively as compared to 2019 (year-on-year). In comparison, the power supply saw a decrease of 3% between March 1 and March 24. During the lockdown between March 24 and April 19, the total power supply saw a decrease of about 25% (year-on-year).
Figure 1: % change in power supply position between March 1 and April 19 (Y-o-Y from 2019 to 2020)
Sources: Daily Reports; POSOCO; PRS.
If we look at the consumption pattern by consumer category, in 2018-19, 41% of total electricity consumption was for industrial purposes, followed by 25% for domestic and 18% for agricultural purposes. As the lockdown has severely reduced the industrial and commercial activities in the country, these segments would have seen a considerable decline in demand for electricity. However, note that the domestic demand may have seen an uptick as people are staying indoors.
Figure 2: Power consumption by consumer segment in 2018-19
Sources: Central Electricity Authority; PRS.
Electricity demand may continue to be subdued over the next few months. At this point, it is unclear that when lockdown restrictions are eased, how soon will economic activities return to pre COVID-19 levels. India’s growth projections also highlight a slowdown in the economy in 2020 which will further impact the demand for electricity. On April 16, the International Monetary Fund has slashed its projection for India’s GDP growth in 2020 from 5.8% to 1.9%.
A nominal increase in energy and peak deficit levels
As power sector related operations have been classified as essential services, the plant operations and availability of fuel (primarily coal) have not been significantly constrained. This can be observed with the energy deficit and peak deficit levels during the lockdown period which have remained at a nominal level. Energy deficit indicates the shortfall in energy supply against the demand during the day. The average energy deficit between March 25 and April 19 has been 0.42% while the corresponding figure was 0.33% between March 1 and March 24. Similarly, the average peak deficit between March 25 and April 19 has been 0.56% as compared to 0.41% between March 1 and March 24. Peak deficit indicates the shortfall in supply against demand during highest consumption period in a day.
Figure 3: Energy deficit and peak deficit between March 1, 2020 and April 19, 2020 (in %)
Sources: Daily Reports; POSOCO; PRS.
Coal stock with power plants increases
Coal is the primary source of power generation in the country (~71% in March 2020). During the lockdown period, the coal stock with coal power plants has seen an increase. As of April 19, total coal-stock with the power plants in the country (in days) has risen to 29 days as compared to 24 days on March 24. This indicates that the supply of coal has not been constrained during the lockdown, at least to the extent of meeting the requirements of power plants.
Energy mix changes during the lockdown, power generation from coal impacted
During the lockdown, power generation has been adjusted to compensate for reduced consumption, Most of this reduction in consumption has been adjusted by reduced coal power generation. As can be seen in Table 1, coal power generation reduced from an average of 2,511 MU between March 1 and March 24 to 1,873 MU between March 25 and April 19 (about 25%). As a result, the contribution of coal in total power generation reduced from an average of 72.5% to 65.6% between these two periods.
Table 1: Energy Mix during March 1-April 19, 2020
Sources: Daily Reports; POSOCO; PRS.
This shift may be happening due to various reasons including: (i) renewable energy sources (solar, wind, and small hydro) have MUST RUN status, i.e., the power generated by them has to be given the highest priority by distribution companies, and (ii) running cost of renewable power plants is lower as compared to thermal power plants.
This suggests that if growth in electricity demand were to remain weak, the adverse impact on the coal power plants could be more as compared to other power generation sources. This will also translate into weak demand for coal in the country as almost 87% of the domestic coal production is used by the power sector. Note that the plant load factor (PLF) of the thermal power plants has seen a considerable decline over the years, decreasing from 77.5% in 2009-10 to 56.4% in 2019-20. Low PLF implies that coal plants have been lying idle. Coal power plants require significant fixed costs, and they incur such costs even when the plant is lying idle. The declining capacity utilisation augmented by a weaker demand will undermine the financial viability of these plants further.
Figure 4: Power generation from coal between March 1, 2020 and April 19, 2020 (in MU)
Sources: Daily Reports; POSOCO; PRS.
Finances of the power sector to be severely impacted
Power distribution companies (discoms) buy power from generation companies and supply it to consumers. In India, most of the discoms are state-owned utilities. One of the key concerns in the Indian power sector has been the poor financial health of its discoms. The discoms have had high levels of debt and have been running losses. The debt problem was partly addressed under the UDAY scheme as state governments took over 75% of the debt of state-run discoms (around 2.1 lakh crore in two years 2015-16 and 2016-17). However, discoms have continued to register losses owing to underpricing of electricity tariff for some consumer segments, and other forms of technical and commercial losses. Outstanding dues of discoms towards power generation companies have also been increasing, indicating financial stress in some discoms. At the end of February 2020, the total outstanding dues of discoms to generation companies stood at Rs 92,602 crore.
Due to the lockdown and its further impact in the near term, the financial situation of discoms is likely to be aggravated. This will also impact other entities in the value chain including generation companies and their fuel suppliers. This may lead to reduced availability of working capital for these entities and an increase in the risk of NPAs in the sector. Note that, as of February 2020, the power sector has the largest share in the deployment of domestic bank credit among industries (Rs 5.4 lakh crore, 19.3% of total).
Following are some of the factors which have impacted the financial situation during the lockdown:
Reduced cross-subsidy: In most states, the electricity tariff for domestic and agriculture consumers is lower than the actual cost of supply. Along with the subsidy by the state governments, this gap in revenue is partly compensated by charging industrial and commercial consumers at a higher rate. Hence, industrial and commercial segments cross-subsidise the power consumption by domestic and agricultural consumers.
The lockdown has led to a halt on commercial and industrial activities while people are staying indoors. This has led to a situation where the demand from the consumer segments who cross-subsidise has decreased while the demand from consumer segments who are cross-subsidised has increased. Due to this, the gap between revenue realised by discoms and cost of supply will widen, leading to further losses for discoms. States may choose to bridge this gap by providing a higher subsidy.
Moratorium to consumers: To mitigate the financial hardship of citizens due to COVID-19, some states such as Rajasthan, Uttar Pradesh, and Goa, among others, have provided consumers with a moratorium for payment of electricity bills. At the same time, the discoms are required to continue supplying electricity. This will mean that the return for the supply made in March and April will be delayed, leading to lesser cash in hand for discoms.
Some state governments such as Bihar also announced a reduction in tariff for domestic and agricultural consumers. Although, the reduction in tariff will be compensated to discoms by government subsidy.
Constraints with government finances: The revenue collection of states has been severely impacted as economic activities have come to a halt. Further, the state governments are directing their resources for funding relief measures such as food distribution, direct cash transfers, and healthcare. This may adversely affect or delay the subsidy transfer to discoms.
The UDAY scheme also requires states to progressively fund greater share in losses of discoms from their budgetary resources (10% in 2018-19, 25% in 2019-20, and 50% in 2020-21). As losses of discoms may widen due to the above-mentioned factors, the state government’s financial burden is likely to increase.
Capacity addition may be adversely impacted
As per the National Electricity Plan, India’s total capacity addition target is around 176 GW for 2017-2022. This comprises of 118 GW from renewable sources, 6.8 GW from hydro sources, and 6.4 GW from coal (apart from 47.8 GW of coal-based power projects already in various stages of production as of January 2018).
India has set a goal of installing 175 GW of Renewable Power Capacity by 2022 as part of its climate change commitments (86 GW has been installed as of January 2020). In January 2020, the Parliamentary Standing Committee on Energy observed that India could only install 82% and 55% of its annual renewable energy capacity addition targets in 2017-18 and 2018-19. As of January 2020, 67% of the target has been achieved for 2019-20.
Due to the impact of COVID-19, the capacity addition targets for various sources is likely to be adversely impacted in the short run as:
construction activities were stopped during the lockdown and will take some time to return to normal,
disruption in the global supply chain may lead to difficulties with the availability of key components leading to delay in execution of projects, for instance, for solar power plants, solar PV modules are mainly imported from China, and
reduced revenue for companies due to weak demand will leave companies with less capacity left for capital expenditure.
Key reforms likely to be delayed
Following are some of the important reforms anticipated in 2020-21 which may get delayed due to the developing situation:
The real-time market for electricity: The real-time market for electricity was to be operationalised from April 1, 2020. However, the lockdown has led to delay in completion of testing and trial runs. The revised date for implementation is now June 1, 2020.
UDAY 2.0/ADITYA: A new scheme for the financial turnaround of discoms was likely to come this year. The scheme would have provided for the installation of smart meters and incentives for rationalisation of the tariff, among other things. It remains to be seen what this scheme would be like since the situation with government finances is also going to worsen due to anticipated economic slowdown.
Auction of coal blocks for commercial mining: The Coal Ministry has been considering auction of coal mines for commercial mining this year. 100% FDI has been allowed in the coal mining activity for commercial sale of coal to attract foreign players. However, the global economic slowdown may mean that the auctions may not generate enough interest from foreign as well as domestic players.
For a detailed analysis of the Indian Power Sector, please see here. For details on the number of daily COVID-19 cases in the country and across states, please see here. For details on the major COVID-19 related notifications released by the centre and the states, please see here.