Electricity distribution companies continue to remain a burden on state finances: RBI

Electricity distribution companies (DISCOMs) continue to weigh heavily on State finances, stated a report by the Reserve Bank of India (RBI). The report also noted that the total accumulated losses of state Discoms reached a staggering Rs 6.5 lakh crore by 2022-23, accounting for 2.4 per cent of the country's GDP.

It said, "Electricity distribution companies (DISCOMs) continue to remain a drag on State finances."

The report added that DISCOMs remain a significant challenge for States despite various reform efforts.

To address this, the RBI stressed the importance of measures such as improving productivity, reducing transmission and distribution losses, and aligning tariffs with the actual cost of power supply.

Other recommended steps include unbundling the electricity supply industry and privatizing power generation and distribution. These measures, the report noted, are crucial for enhancing the financial health of DISCOMs and, by extension, improving the overall quality of State finances.

It added, "Unbundling the electricity supply industry, and privatising generation and distribution remain critical and would significantly improve the quality of State finance."

Despite multiple financial restructuring efforts, the report highlighted that the DISCOMs' total outstanding debt has grown at an average annual rate of 8.7 per cent since 2016-17.

The report also outlined that the states need to prioritise operational efficiency by minimising distribution losses, improving metering systems, ensuring timely tariff revisions, and incentivising the power sector to gradually reduce reliance on government subsidies
This reflects an improvement from previous years and demonstrates a commitment to responsible financial management.

Additionally, the report also mentioned that the States have made progress in improving expenditure quality.

On a more positive note, the RBI report observed that States have made strides in maintaining fiscal discipline. In 2023-24, the gross fiscal deficit (GFD) of States was contained at 2.91 per cent of GDP, staying well within the 3 per cent limit set by the Fiscal Responsibility Legislation (FRL).

The capital outlay, which is a critical indicator of investment in infrastructure and long-term growth, rose to 2.6 per cent of GDP in 2023-24, up from 2.2 per cent in the previous year.

Looking ahead, the report projects that States are expected to maintain fiscal discipline in 2024-25, with the GFD budgeted at 3.2 per cent of GDP.