In a pioneering move, Andhra Pradesh will start disbursing power subsidies to all eligible agricultural consumers directly to their bank accounts by FY22 end.
The end to the free power scheme for farmers will result in considerable relief for the state’s power distribution companies (discoms), which will not have to wait for the often-delayed subsidy transfers from the government.
Power subsidy for farming in the state, estimated to be nearly Rs 8,500 crore in FY21, is roughly a fifth of the annual revenue reported by discoms in the state.
The DBT mechanism will be implemented in a pilot phase in one district in the current financial year, and by FY22 end, it will be operational throughout the state, according to an order issued by the state government. Since agricultural usages are not properly accounted for, the agricultural feeders will be separated from domestic and industrial supplies and all connections will have to be metered to ensure monitoring of consumption.
Around Rs 1,700 crore has been earmarked for feeder segregation and installing meters in the state and the remaining requirement will be funded through debt.
The agricultural subsidy in the state works out to be around Rs 48,000 per year for every 5 HP pump set, which can irrigate about 5 acres of land.
Delayed disbursal of subsidies by state governments reflect adversely on aggregate technical and commercial (AT&C) loss figures of discoms because it deflates the revenue against the units of electricity sold.
Since the subsidy release is almost perennially delayed, its impact on tariff recovery persists, putting pressure on discoms’ liquidity.
Andhra Pradesh’s AT&C losses increased more than 10 percentage points annually to 25.7% in FY19, as it released only Rs 1,250 crore against the subsidy claim of Rs 6,052 crore to its discoms.
According to the Electricity Act, 2003, states are required to release the subsidies – meant for the consumers but routed through the discoms – in advance. Discoms of Andhra Pradesh reported a loss of `16,736 crore in FY19, up from `546 crore in the previous fiscal.
The step to bring in DBT has been taken to fulfil the conditions imposed by the Centre to receive 0.5% FRBM relaxation for additional borrowings. Finance minister Nirmala Sitharaman, in May, had announced the increase in borrowing limits of states from 3% to 5% of the gross state domestic product (GSDP) for FY21. The relaxations were contingent to specific reforms in four sectors, including power distribution, where the implementation of direct cash transfers to eligible power consumers was made mandatory.
“Notwithstanding the state’s significant investment in surface irrigation, agricultural power consumption have been rising, and there was no incentive to optimise water and power consumption which led to mining ground water,” PV Ramesh, additional chief secretary to the chief minister of Andhra Pradesh, told FE.
Ramesh pointed that agricultural subsidy has spiralled to current levels from Rs 3,400 crore in 2014, and “with free power, there were instances of farmers over irrigating their land and growing water intensive crops”.