NEW DELHI: As the fear of power sector debt turning loom large and with warning over poor state finances by both the Reserve Bank of India (RBI) and the Finance Commission, the government is likely to review its flagship Ujwal Discom Assurance Yojana (UDAY) scheme. “UDAY scheme is posing some financial challenge, especially in terms of state finance companies. Increasing state debt on account of power sector is a problem and both the finance ministry and the power ministry will review the scheme,” said a senior official, finance ministry.
The UDAY scheme was launched in November 2015 and under the scheme, state governments were to take over 75 per cent of the utilities’ debts and include it in their fiscal deficit calculations.
Till March 2019, governments of 16 states have taken over around Rs 2.32 lakh crore debt of their discoms.
Now with a decrease in power sector demand, in view of slowdown and increasing loss of discoms, the scheme is likely to put more stress on the states’ finances.
This was warned by the RBI in its report released in October. It said the impact of this provision on state finances could increase significantly in 2019-20 and 2020-21 on account of higher losses by discoms as states have to take over 50 per cent of the discoms’ debt by 2020-21, as against 25 per cent in 2019-20 and 10 per cent in 2018-19.
“Going forward, states might have to take over higher losses of discoms if they do not show a turnaround in their financial performance and this will inevitably take its toll on debt sustainability in the medium-term,” the RBI said its report.
And the trend is not encouraging either. State-run electricity distribution companies reported a near doubling of their financial losses in FY19 to Rs 28,369 crore.
“If you look at the trend since last three months, the power demand has shown a downward trend. The slump is more in the industrial states of Maharashtra and Gujarat. This will put more pressure for discoms,” said a senior official, Power Finance Corporation, adding, till there is a directive from the top they are not lending to any discoms with stressed financials.