Andhra, MP leads states in reform for loans, but they all stay away from tough energy sector

Representative image of the Union Ministry of Finance | ANI

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New Delhi: Indian states are moving forward with reforms proposed by Narendra Modi’s government, such as seeding Aadhaar with ration cards, putting in place measures to facilitate doing business, and reforming local bodies urban areas, in order to take advantage of the additional borrowing window offered by the Center.

However, they avoided power sector reforms that force them to make the “politically difficult” decision to introduce direct profit shifting for the provision of free electricity to farmers as well as focus on reducing costs. losses of public distribution companies.

According to a finance ministry statement on Wednesday, Andhra Pradesh and Madhya Pradesh have so far completed three of the four reforms proposed by the Modi government, making them eligible for the incentives offered by the latter.

The incentives include improved borrowing limits for states as well as special financial support from the central government to undertake the capital spending announced under the Atmanirbhar package.

The option of additional borrowing was given by the central government to cash-strapped states, which were battling the pandemic and facing a huge shortage of resources due to the contraction in tax and other revenues.

The Modi government proposed last year that states could borrow beyond the 3% of their gross domestic product subject to meeting certain reform criteria.

Qualified as “citizen” reforms, states could borrow an additional 0.25 percentage point each to meet all the criteria for reform.

According to data from the Ministry of Finance, viewed by ThePrint, ten states have implemented the One Nation, One Ration Card system, while seven states have launched reforms to make doing business easier and two states have launched reforms. reforms of local organizations.

However, no state has implemented the electricity sector reforms.

States meeting some of the reform criteria, the Center has given them permission to borrow an additional Rs 51,682 crore.

Read also : The Modi government’s conditional offer to states on borrowing and the controversy surrounding it

Reforms proposed by the Modi government

The government had asked the states to complete the seeding of Aadhaar with each ration card in order to ensure the successful deployment of the “One Nation, One Ration Card” program. The government now aims to complete this process by March 2021 compared to the earlier deadline of June 2020.

He also called on states to install an electronic point of sale (POS) machine in every ration store to allow the use of electronic ration cards.

As part of the Ease of Doing Business initiative, states were required to assess the business reform action plan at the district level, eliminating the need to renew registration certificates and licenses obtained. by enterprises under various laws, and the implementation of a centralized computerized random inspection system with provisions such as central assignment of inspectors and frequent rotations to prevent rent seeking.

As part of the reforms aimed at increasing the incomes of urban local communities, the States were invited to ensure a revision of the floor rates of property taxes and to adapt them to the prices of urban real estate in order to ensure an increase in the incomes of municipalities. They were also asked to ensure that municipalities revise the floor rates of user charges for water and wastewater.

As part of the electricity distribution reforms, states have been urged to introduce a direct benefit shift for farmers, who currently receive free electricity. The Center wants farmers to first pay for the electricity they consume, which will then be reimbursed by the state through a direct cash transfer to farmers’ bank accounts to make them more aware of their consumption. electricity.

As free power to farmers is a politically sensitive issue, most states have avoided this reform.

States have also been requested to ensure that public electricity distribution companies reduce their overall technical and commercial losses and eliminate the gap between the cost of providing electricity and the income earned.

Experts said the “political fallout” from some of these reforms could be difficult for states to manage.

“Difficult politically and financially”

NR Bhanumurthy, vice-chancellor of Dr BR Ambedkar School of Economics University in Bengaluru, said power sector reforms are politically and financially difficult to undertake.

“There are pending contributions that extend over several years. the Schematic of Uday didn’t help much either. The political fallout from some of these reforms can be difficult for states to manage. In the case of local body reforms, states preparing for local body elections may also not opt ​​for such reforms, ”he said.

The Uday program was the Modi government’s ambitious program to reduce the losses suffered by public distribution companies and make them financially viable. However, it had only limited success, with many state-owned distribution companies continuing to record losses even after five years after the program began.

Read also : Conditions on additional borrowing will help states’ medium-term growth (Head of Finance panel)

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