MP transfers cash directly to farmers, earns additional borrowing capacity

The Centre had allowed states to borrow beyond their set fiscal road map to fight the Covid-19 pandemic

Madhya Pradesh has become the first state to implement the direct cash transfer of power subsidy to farmers as stipulated by the Union finance ministry under the Aatmanirbhar Bharat (Self-reliant India) stimulus package. This has earned the state an additional borrowing capacity equivalent to 0.15% of its gross state domestic product (GSDP) in the current financial year, two officials said.

Representational image. (Getty Images/iStockphoto)

Madhya Pradesh is the only state to undertake the specific power sector reforms to unlock an additional borrowing limit offered under the package announced on May 17, the Union finance ministry officials said, requesting anonymity.

The Centre had allowed states to borrow beyond their set fiscal road map to fight the Covid-19 pandemic. Under the Fiscal Responsibility and Budget Management Act, states are allowed to keep their fiscal deficit at 3% of GSDP.

The Centre on May 17 raised states’ borrowing limit by 2% of GSDP in 2020-21; a part of which was based on certain conditions. A 1% of the additional borrowing limit was available to states on implementation of four citizen-centric reforms with a 0.25% value each -- one nation, one ration card system, ease of doing business, reform of urban local bodies and the power sector.

After the launch of the scheme under the package, 14 states have so far carried out at least one of the four stipulated reforms and have been granted reform linked borrowing permissions worth ₹62,762 crore, the officials said. Eleven states have implemented the one nation, one ration card system. Eight states have done ease of doing business reforms. Four have carried out local body reforms and Madhya Pradesh has implemented power sector reforms, the officials said.

“...to earn special borrowing dispensation, MP [Madhya Pradesh] has launched direct transfer of electricity subsidy to farmers in one district of the state from December 2020. Thus, it earned the eligibility to mobilise additional financial resources equivalent to 0.15% of its GSDP,” one of the officials said.

The finance ministry on Tuesday granted permission to the state to mobilise additional ₹1,423 crore through open market borrowings.

The state has to work on other areas of the power sector to earn the full 0.25% of the dispensation, the official added. Under the power sector reforms, states are required to meet three conditions to avail additional financial resources of up to 0.25% of the GSDP.

They get additional borrowing space of 0.05% of GSDP each by reducing aggregate technical and commercial losses and by narrowing the gap between the average cost of supply and average revenue realisation (ACS-ARR) in the state as per prescribed targets. Balance space of 0.15% of GSDP is earned by introducing Direct Benefit Transfer (DBT) in power subsidy to the farmer.

“According to the special borrowing dispensation policy stipulated by the department of expenditure, an arm of the Union finance ministry, states were expected to frame a scheme for transfer of cash power subsidy to the farmer and implement the same in at least one district by December 31, 2020,” a second official said. “MP met the criteria by framing the policy and implementing the same in Vidisha.”

Madhya Pradesh framed a DBT scheme for agricultural power consumers and the MP Madhya Kshetra Vidyut Vitaran Company Limited has distributed over ₹32 crore directly into bank accounts of over 60,000 farmers within the stipulated time, the second official said.

The scheme will also be launched soon in other districts such as Jhabua and Seoni and the state government has informed the Centre that the DBT system will be rolled out in the entire state in the next financial year.

Abhishek A Rastogi, a partner at law firm Khaitan & Co, said: “Out of the four reforms offered to avail the special dispensation under the Aatmanirbhar Bharat stimulus package, Madhya Pradesh is the only state which has boldly initiated the power sector reforms. This is commendable as most states seem reluctant to undertake power reforms due to various reasons. Leakage of power subsidy is a bane. DBT must be introduced across the country. Power sector reform is must to take India into a higher growth trajectory.”